Private power firms seek urgent settlement of state-run discoms’ dues

Private sector power producers have asked the ministry of power for an urgent resolution to the delays in payment by state-owned distribution companies (discoms), which in turn, will help stave off the massive loan defaults by the producers.

In a meeting with power ministry officials and bank executives on Tuesday, power company representatives also requested banks to extend loans to discoms that would enable them to clear their dues. Mint has reviewed a copy of the minutes of the meeting.

“Discoms owe more than ₹40,000 crore to power generators, out of which ₹18,500 crore is owed to private sector power producers,” Ashok Khurana, director general, Association of Power Producers, said in a phone interview. “The ‘change in law’ dues (on account of pass through of coal costs) amount to ₹7,000 crore; dues stuck in litigation is another ₹17,000 crore. Unless we want these operational healthy assets to also become NPAs, we suggest that everybody involved find a solution. If we don’t, by the end of March, bank loans to several power companies will become NPAs.”

In a nutshell, delays in payments by state-owned discoms, in some cases even by over 500 days, have made it difficult for power producers to service their loans, and running the risk of being dragging to the bankruptcy court by their lenders.

“You cannot have an ecosystem where banks can declare you an NPA for missing debt payment by one day, while discoms fail to pay us for nine months,” Khurana said. “We need to keep power generators immune from the financial irregularities at discoms. So, the industry has suggested a tripartite arrangement, backed by the RBI and as recommended by the high-level empowered committee, where banks can extend a special loan facility to discoms specifically for funding regulatory receivables. Power Finance Corp. and Rural Electrification Corp. can be roped in as well to allow bill discounting services to power producers.”

The minutes of the meeting also showed that banks were nervous about the power producers’ ability to repay loans and, therefore, they have either stopped funding working capital requirements, or offer the loans at high interest rates. This makes it even more difficult for power producers to run their plants. “Inadequate working capital compounds the problem for private generators and, therefore, impacts their loan servicing ability. It would be prudent to support the private generators in having the working capital it needs to operate at optimum levels,” the document noted.

A power ministry spokesperson did not respond to calls or text messages.

A senior executive at a private producer said, requesting anonymity, that in the long-run, distribution reforms were the only way forward to keep the industry healthy.

“Discoms have to be able to pay of their own accord; all the other solutions are piecemeal. They have to improve their performance and need to pay for whatever energy they are consuming and so, distribution reforms, bringing in collection and billing efficiencies, are a necessity.”

“Even a three-month delay in payment of dues is unsustainable for producers like us,” he added. “We have to pay for coal, we have to pay the railways in advance for shipment. I don’t think the government can keep bailing out everyone. Discoms must start to run their businesses on commercial lines. They can’t expect a dole to pay for normal business expenses and paying your suppliers is a normal business expense.”

The Reserve Bank of India has identified as many as 34 financially stressed power projects with loans of over ₹1.8 trillion at risk of becoming NPAs.

Power producers, who would otherwise have been taken to the bankruptcy court, had moved courts and had appealed to the RBI to ease the strict bad loan-recognition norms, but their plea was not entertained by the central bank.