Power producers pull plug on truant discoms

Written by Noor Mohammad | Noor Mohammad | New Delhi | Updated: Feb 13 2013, 07:48am hrs
PowerNot just lenders but power producers too have started cracking down on financially troubled distribution companies.
Not just lenders but power producers too have started cracking down on financially troubled distribution companies. Even private discoms, known for their relative ability to price power remuneratively, are finding themselves at the receiving end as generators have started snapping supplies for any delay in payments.

State-owned NTPC and Damodar Valley Corporation (DVC) and private firms like Tata Power and Lanco Power are among producers which have started or planning to start supply cuts to defaulting discoms in order to force them to pay up. The move comes at a time when the Centre and states are discussing contours of a massive debt recast scheme for discoms contingent on reforms, including timely tariff hikes and privatisation.

Discoms are required to maintain letters of credit (LC) under the power purchase agreement (PPA) to ensure timely payment to power suppliers. But in recent weeks, several financially-distressed discoms have failed to honour this key contractual condition, forcing generators to issue disconnection threats. In the latest case, NTPC has just served a 90-day notice to BSES discoms in Delhi BSES Yamuna Power and BSES Rajdhani Power for electricity supply disconnection over discoms failure to replenish the LC account in time. Even when the discoms have no dues to the generators, the power major is within its right to issue the notice under the Power Regulation Act 2010.

In the absence of a cost-reflective tariff over the past several years, Delhi discoms are under financial stress with accumulated recoverable revenue gap of about R20,000 crore, a BSES spokesperson said. Both Delhi and DVC had also used similar threats earlier to resolve payment issues with the BSES discoms.

DVC is facing payment delays for power supplied to BSES discoms and may also be forced to issue notice for disconnection.

The two discoms together owe about Rs 250 crore to the public sector generator for power supplied by it. DVC chairman RN Sen has sought intervention from Shakti Sinha, principal secretary, power, Delhi government, in this matter. If the issue of payment of outstanding dues by BSES discoms does net get resolved, we will be forced to issue them notice to discontinue power supply, Sen told FE.

Private power companies like Tata Power and Lanco Power too have issued power regulation notices to their customers. While Tata Power has recently served notice to halt power supply to Rajasthan discoms from the Mundra ultra mega power project over pending payment security issues, Lanco Power just stopped generation from its 1,200 MW imported coal-based Udupi plant, citing coal unavailability after Karnataka discoms ran up unpaid dues of Rs 1,400 crore. Since the state consumes 90% of electricity generated by the Udupi plant, it plunged into a crisis after the station halted generation. Given the risks of public disorder over massive load-shedding, the Karnataka chief minister himself had to intervene in the matter.

Since then, the plant has started generation after a coal consignment arrived from Indonesia. However, Lanco sources denied the coal shortage was deliberately created by the company to force discoms into clearing outstanding dues.

Facing serious cash flow problems, heavily-indebted discoms in states like Uttar Pradesh and Tamil Nadu have also defaulted on power purchased from traders like PTC India, NTPC Vidyut Nigam and Adani.

The combined losses of the state power sector have crossed Rs 2 lakh crore, the bulk of which has been financed with short-term loans from banks and financial institutions. The Centre has approved a Rs 1.8 lakh crore debt restructuring scheme to help improve cash flows of discoms. However, debts are yet to be recast. Meanwhile, banks have stopped lending to discoms, compounding their cash flow woes.


* Discoms must maintain letters of credit to ensure payments to power firms

* Even when there are no dues, power co can issue the notice for not maintaining LC

* NTPC has served 90-day notices to BSES Yamuna Power, BSES Rajdhani Power

* Tata Power and Lanco Power too have issued notices to their customers