New Delhi: In what may further exacerbate the growing crisis in the Indian power sector, the electricity distribution companies (discoms) owe ₹74,710 crore for the power bought from the generation companies (gencos) at the end of July, according to information available on union power ministry’s PRAAPTI portal.
The overdue outstanding amount was ₹55,091 crore. This comes at a time of the ongoing crisis in discoms due to their poor financial health, which has resulted in delayed payment to generation utilities. The development happened at a time when Centre is trying to step up efforts to supply round-the-clock power to all.
Worried by the growing crisis that may add to the stress of non performing assets (NPAs) in the banking sector, the National Democratic Alliance (NDA) government in its second term made it mandatory for state discoms to offer letters of credit (LC) as part of the payment security mechanisms in power purchase agreements (PPAs). This became effective starting 1 August and was done to ensure timely payments by states to electricity generation utilities.
Accordingly, the National Load Dispatch Centre (NLDC) and Regional Load Dispatch Centres (RLDC) have been directed by the Union power ministry to “dispatch power only after it is intimated by the generating company and distribution companies that a letter of credit for the desired quantum of power has been opened and copies made available to the concerned generating company".
In an earlier interview to Mint, Power Minister Raj Kumar Singh spoke about southern states cautioning the Centre of civil unrest because of mandatory letters of credit as part of the payment security mechanisms and his strategy of limiting state governments’ borrowing.
In the event of a stoppage of electricity supply due to non-opening of the LC by the discoms, they will be liable to pay compensation to the generator as per the terms of PPAs.
“By the first of August, I put in place a system by which the power gets dispatched only when a letter of credit is given. Earlier, the losses didn’t matter because of inefficiencies or they could cover those losses. States used to announce subsidies without giving the money or the government departments did not pay. They would cover the losses by paying late to the generating companies or not paying at all and doing load shedding. Now, both these options are being cut off. So, now you can’t pay late because you have given a letter of credit and there is no question of load shedding. So, now if you incur losses, you will have to find the money to buy power," Singh said in the interview.
There is growing wariness among investors at a time of some states trying to renegotiate the PPAs. A case in point being Andhra Pradesh, that is trying to rework the contracts signed by the previous government for wind and solar power with average tariffs (FY14) of Rs4.70 per unit and Rs5.8 per unit, respectively.
This also comes at a time when non-performing assets in power generation account for around 5.9% of the banking sector’s total outstanding advances of ₹4.73 trillion, according to the Economic Survey 2016-17 released last August.
However, according to Finance Minister Nirmala Sitharaman, the performance of India’s public sector banks has improved with the improvement in asset quality helping in bringing the NPAs down to ₹7.9 trillion at the end of March 2019. In comparison, the gross NPAs was ₹8.65 trillion at the end of December 2018 and ₹8.69 trillion at the end of September 2018.