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MAY 25 2016

Unable to recover costs, private discoms in Delhi seek govt help

  • Economic Times, ET Bureau / Hyderabad
  • Created: Wed 25th MAY 2016

State-owned NTPC Ltd’s threat earlier this month to cut off power supply to two units of Reliance Infrastructure Ltd supplying to large parts of Delhi due to delay in payments point to the financial distress slowly gripping private power distribution companies in the capital, which are now pinning hopes on central and state governments coming to their aid.

 Reliance Infrastructure arms BSES Yamuna Power Ltd (BSEL YPL) and BSES Rajdhani Power Ltd (BSES RPL) and Tata Power Delhi Distribution Ltd are together saddled with more than Rs.36,000 crore of power purchase cost yet to be recovered from consumers due to delay in power tariff revision.

 The companies now want not just government intervention in a debt rejig, but concerted efforts to reduce their power purchase cost, including replacement of costly long-term power purchase agreements that were signed by their predecessor Delhi Vidyut Board (DVB) before its privatization in 2002 with new ones from efficient and cost-effective power plants.

 Companies believe that joining the Ujwal Discom Assurance Yojana (UDAY) approved by the Union cabinet on 5 November 2015, which was originally meant for state-owned power distributors, will help the private sector too to tide over their financial distress and could even lower power tariff by 75 paise per kilo watt hour.

 “At the end of the day, the benefit of financial and operational efficiency achieved from UDAY will go to consumers, whether power is supplied by a government entity or a private one. Consumers in Delhi should not be deprived of its benefit,” said Praveer Sinha, chief executive officer (CEO) and managing director of Tata Power Delhi Distribution.

 Union power minister Piyush Goyal said on 21 May that he will propose amendments to UDAY so that private power distribution companies too can benefit from it. It is, however, for the state governments concerned to decide whether to take over the debt of a particular private power distributor.

 UDAY agreements let the state governments concerned to take over 75% of the outstanding debt of distributors and allow the utilities to refinance the remaining 25% with state-guaranteed fresh bond issues.

 States joining UDAY get priority in fund allocation from the federal government for projects like village electrification. It also sets binding targets for reduction of losses from power theft and bill collection inefficiencies (called aggregate technical and commercial –AT&C—losses).

 At present, every unit of power supplied adds to distributors’ debt burden because the regulated power tariff charged to the consumer does not reflect the actual cost of power purchase, according to people familiar with the companies’ discussion with the governments.

 State electricity regulatory commissions have to strike a delicate balance between avoiding tariff shocks to consumers and preventing unallowed costs (called regulatory assets) building up on the books of power distributors, which reduce their ability to give quality service. An email sent to the Delhi Electricity Regulatory Commission (DERC) on Monday remained unanswered. Cash flow problems affecting distribution companies’ ability to buy power and to invest in infrastructure maintenance leads to supply disruptions.

 Delhi power minister Satyendra Jain on Saturday alleged that power cuts in the state are due to poor maintenance, adding that consumers should be compensated for outages of more than two hours. The state has approached DERC in this regard, he said.

 Private power distributors fare way better than state-owned ones in operational efficiency. Sinha of Tata Power Delhi Distribution said the company has lowered its AT&C losses to less than 9% of the total units of electricity supplied from about 53% at the start of operations.

 BSES distribution companies have lowered AT&C losses to around 15% now. Such losses are as high as 35% in the case of Jharkhand and 32% in the case of Uttar Pradesh, where utilities are government-owned, according to central government data. Governments of these two states along with their public sector distribution companies recently joined UDAY.

 “Privatization of distribution has delivered intended results, such as reduction in losses, better customer service, and improved operating efficiency, in almost all cases where the governments adopted it as a sincere policy action. However, governments have tended to disadvantage private licensees in a variety of ways, for example, by not recognising the true level of initial losses, or by freezing tariffs for a period resulting in accumulation of regulatory assets,” said Kameswara Rao, leader of energy, utilities and mining practice at PricewaterhouseCoopers India.

 According to official estimates, power distribution, steel and textiles account for a large part of the Rs.7 trillion non-performing assets in the banking sector, accounting for nearly 12.6% of advances. This comes in the way of power distributors securing fresh loans. A person familiar with the discussions between the power distributors and the Delhi government said that their power purchase cost has increased threefold since 2002, whereas tariff has risen only 90% so far.

 Rao of PwC said if state governments took a positive approach to privatization, by extending cost benefits of UDAY scheme and by offering regulatory certainty for revenue by adopting the provisions from the revised tariff policy even for a 5-7-year period, there could be complete revival in the distribution sector.

 

Tags

Delhi Uttar Pradesh TOTAL Jharkhand BSES Rajdhani Power Ltd Banking BSES Yamuna Power Ltd Distribution Companies Tariff NTPC Ltd Energy Electricity Regulatory Commission Price waterhouseCoopers Pvt. Ltd Power Distribution Delhi government Delhi Electricity Regulatory Commission Power Tariff policy Tata Power Electricity Consumer India BSES RPL

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