As defaults mount, power firms warn of blackouts3 min read . Updated: 17 Nov 2011, 11:59 PM IST
As defaults mount, power firms warn of blackouts
As defaults mount, power firms warn of blackouts
New Delhi: In what may lead to blackouts across the country, the power distribution companies of Tamil Nadu, Jharkhand, Assam, Punjab, Madhya Pradesh and Delhi, among others, are defaulting on payments to public sector electricity utilities.
These utilities are now threatening to pull the plug. Under the existing rules, they are allowed to “regulate" or discontinue power supply if dues haven’t been paid for 60 days.
A senior executive at a central government-owned utility, requesting anonymity, warned that the situation could spiral out of control if “not defused soon".
Of this amount, Reliance Group’s BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd alone account for ₹ 1,158.32 crore.
Other distribution firms that owe money are those of Bihar, Meghalaya, Jammu and Kashmir, Arunachal Pradesh, Manipur, Jaipur Vidyut Vitran Nigam Ltd and West Bengal.
“We’re putting pressure and giving notices on regulation of power. The situation is not comfortable. This development is recent and has happened in the last few months," said A.B.L. Srivastava, chairman and managing director of NHPC.
“The distribution companies are not paying and (this) is compounding matters for us since we’re a small company," said R.S.T. Sai, chairman and managing director, Tehri Hydro. “We are having difficulties as our main customers Delhi, Jaipur Vidyut Vitran Nigam Ltd and Uttar Pradesh are not paying. We are trying to persuade them and will resort to giving notice shortly."
This comes as distribution firms across India, most of which are owned by the states, are finding it difficult to raise working capital and owe a staggering ₹ 1.77 trillion to banks, an indicator of the crisis unfolding in the Indian power sector.
“The discoms (distribution companies) will have to increase their financial viability. The Centre and states have to come up with a solution. The situation has turned critical. We have started sending notices. While things are yet to turn catastrophic, if it goes on for long it will be a disaster," said R.N. Nayak, chairman and managing director, Power Grid.
Another senior Power Grid executive, requesting anonymity, said: “The state discoms are not paying and dues have started piling up. While a generation utility has the option of diverting power, all the transmission lines are not dedicated to one state and cater to multiple states, putting us at a disadvantage. We have given notices to the states to stop power supply."
Many distribution utilities are saddled with losses arising from theft, inefficient transmission and billing inefficiencies. Some regularly buy expensive power to tide over short-term deficits, and many haven’t revised rates in years.
The poor financial health of these distribution firms means they cannot raise money at all, or can do so only at very high interest rates. Worse, since they are the main customers of power generation and transmission companies, there is a growing reluctance among both investors and financiers to invest in the latter.
“The discoms will have to pay. Their financial obligations will have to be met," said India’s power secretary P. Uma Shankar.
India has 73 distribution utilities, including a handful of private ones in states such as Delhi that have privatized electricity distribution.
BSES Delhi has received regulation notices from several entities, a spokesperson said in an email.
“The situation has arisen entirely because of substantial increases in power purchase costs these last few years coupled with the complete absence of a cost-reflective tariff regime at the distribution level," the company said.
A central bank warning to banks on loans to the sector has made raising debt difficult, it said. The situation is expected to improve to some extent following new tariffs, but Delhi discoms continue to “incur an average cash loss of over ₹ 1.60 for every unit of power supplied", the company said.
“Under the circumstances, we are making every effort to convince the generating and transmission companies that being equal partners in supplying power to Delhi, they should not resort to regulation of power to BSES Delhi, as this has a direct impact on power availability in Delhi, the national capital," BSES said.
State-owned NTPC Ltd had earlier issued notices to the two Reliance Group companies stating it would discontinue power supply last month if ₹ 895 crore in dues weren’t paid. However, the issue was resolved after the two power distributors gave a written assurance to NTPC that they would unconditionally restore the letters of credit, clear outstanding dues and also undertake to pay arrears in six equal instalments before March 2012, as reported by Mint on 6 September.
The cumulative losses of the distribution utilities are around ₹ 75,000 crore, and if the present trend continues, their projected losses in 2014-15 will be ₹ 1.16 trillion, according to a study conducted by energy consulting company Mercados EMI Asia for the 13th Finance Commission.