New Delhi: State-run NTPC Ltd told two units of Reliance Infrastructure Ltd, which distributes electricity in large parts of Delhi, that power supply will be cut from 10 May over non-payment of dues, highlighting the financial distress in the distribution business.

NTPC, in a statement, said BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL), which collectively purchase 2,027 megawatts (MW) a month from the producer, owe it around 1,300 crore.

“A notice has been served on BRPL and BYPL for regulation of power supply with effect from 00:00 hrs of 10.05.2016 for a total quantum of 2,027MW," the NTPC statement said.

BSES said it is under financial stress because of non-liquidation of regulatory assets (that is, for costs yet to be permitted by electricity tariff regulators), estimated at over 16,000 crore as on 31 March.

“As compared to this, dues payable by BSES to NTPC are around 1,300 crore. The payment of dues to power utilities by BSES distribution firms is sub judice in the Supreme Court. The judgement in the matter is reserved since February 2015. We are awaiting the Supreme Court judgement, which will clear the path for recovery/liquidation of regulatory assets," said a BSES spokesperson.

“BSES distributors are making concerted efforts to address the situation and clear pending dues in a just and equitable manner," the spokesperson added.

Power procurement cost accounts for 85% of the total expenses of distribution firms. The gap between the cost of power purchased from power generators and the amount realized by distributors from consumers is often large. This, because state electricity regulatory commissions do not allow certain costs to be passed on to consumers. Distributors are also burdened by power theft and defaults by consumers.

NTPC, on its part, said it was resorting to the decisive step as it has to pay its fuel suppliers in advance. The company said if non-payment continues, its plants risked facing outages on account of fuel shortage.

“Under the circumstances, NTPC has no option but to serve the notice for regulation of power on the BSES distribution companies," said the company’s statement.

According to NTPC, the apex court had on 26 March 2014 directed BSES distribution firms to ensure payments of all “current energy bills with effect from 1 January 2014". The power producer said the dues continued to mount despite clear directions from the court.

BRPL owes NTPC 892 crore, while BYPL owes it 403 crore, the statement said.

Central Electricity Regulatory Commission (Regulation of Power Supply) Regulations, 2010, allow power producers to restrict supply to distribution and transmission firms for defaulting on payment obligations. “Many electricity distribution utilities today have tariffs not reflecting reasonable costs. Accumulating regulatory assets is only postponing the problem to future." Said Debasish Mishra Partner with Deloitte Touche Tohmatsu India LLP.

After the central government introduced a turnaround scheme for public sector power distributors—the Ujwal Discom Assurance Yojana (Uday)—on 5 November, it urged the Forum of Electricity Regulators to be more sensitive to genuine tariff revision requests.

While the idea of Uday was primarily to reduce losses through improvements in financial and operational efficiency, many state power distributors wanted timely tariff revisions, too, in order to bridge at least one-third of the gap between their power purchase cost and price realized from consumers.

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