Costly contagion

Costly contagion

With an executive of the country’s largest power producer, NTPC Ltd, warning that higher LNG spot prices—which are rising on the back of soaring crude oil prices—are going to push up power generation costs, a politically tough situation could arise.

Power purchase agreements say that fuel cost increases will be passed on to the customers—the state electricity boards. But in reality, getting them to pay up is known to be a tough task.

Here, a concern arises from the bad precedent set by the Union government— issuing a series of bonds to “compensate" oil companies as it has had no will to raise retail prices of fuels such as petrol, diesel and LPG. It is also doing the same for fertilizers. So, what stops state governments from jumping onto the bandwagon and offering similar bonds to power producers, rather than letting their state electricity boards square up?

The contagion of accounting fudges would only spread if that happens