Govt may lower tariffs to bail out power sector | Mint
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Business News/ Industry / Energy/  Govt may lower tariffs to bail out power sector
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Govt may lower tariffs to bail out power sector

The power sector bailout package may involve temporarily reducing electricity tariffs, providing concessional finance, and clearing around ₹1 trillion in outstanding dues of discoms by state owned financial institutions

With peak power demand coming down, industrial power demand has taken a hit. (Photo: Mint)Premium
With peak power demand coming down, industrial power demand has taken a hit. (Photo: Mint)

NEW DELHI : India will shortly announce a power sector package that may involve a temporary tariff reduction, concessional finance, and payment of around 1 trillion dues of electricity distribution companies (discoms), two government officials said, as part of the stimulus plan announced by Prime Minister Narendra Modi on Tuesday evening.

The stimulus package, details of which are awaited, is aimed at combating the economic disruption from the coronavirus lockdown.

As factories stayed shut during the lockdown, India’s electricity demand load shifted to homes, resulting in lower realizations. With peak electricity demand coming down, commercial and industrial power demand has taken a hit.

Energy consumption, especially electricity and refinery products, is usually linked to overall demand in the economy.

The current tariff mechanism has two parts—a fixed cost, which is the investment incurred towards power generation equipment, and a variable cost or the cost of fuel. Even if a discom doesn’t buy the electricity contracted for, it has to pay the fixed cost. The government is exploring a temporary change in the electricity tariff structure that will waive the fixed-cost component even if states don’t buy the electricity contracted for, according to the two people cited above. This is expected to result in a saving of around 2,000 crore to discoms on account of central public sector units alone.

In addition, state-owned Power Grid Corp. of India Ltd may waive inter-state electricity transmission charges to discoms for the lockdown period, that will result in a savings of around 1,400 crore, the people cited above said.

“States have requested relief from payment of fixed charges pertaining to unscheduled power and capacity," said one of the two people cited above.

This comes against the backdrop of the fifth meeting of the chief ministers with Prime Minister Narendra Modi on Monday. “The chief ministers have sought support to MSMEs, infrastructure projects, easing of interest rates on loans and assured market access to the agricultural produce," the Prime Minister’s Office said on Monday.

States have hit their borrowing limits, and their revenues are down to a trickle. Dwindling fund transfers from the Centre and limited avenues to raise taxes post the introduction of goods and services tax have added to their problems.

Other measures in the works include a one-time relaxation in working capital borrowing limits imposed under Ujwal Discom Assurance Yojana. The discoms will be allowed working capital borrowings from banks and financial Institutions that may be up to 25% of last year’s revenues to clear dues to power generation and transmission firms.

According to government documents reviewed by Mint, “It is proposed that Power Finance Corp (PFC) and Rural Electrification Corp (REC) will raise an amount of about 90,000 crore from the market against receivables of discoms from the states in the form of electricity dues and subsidy not disbursed as existing on 31 March and pay the central public sector unit Gencos and Transcos, IPPs (independent power producers) and RE (renewable energy) generators on their behalf so as to liquidate their outstanding dues of about 94,000 crore."

The idea is to clear the payment backlog with the loans guaranteed by the states.

“These would be disbursed in two tranches and will be linked to reforms, viz., increasing digital payment interfaces; prepaid metering in government departments," the document added.

A power ministry spokesperson declined to comment.

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ABOUT THE AUTHOR
Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Published: 12 May 2020, 06:40 PM IST
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