APGENCO Headed For Bankruptcy

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New Delhi, Dec 12: : Andhra Pradesh Power Generation Corporation Limited (APGENCO), the holding company for the states’ generating assets, is headed for bankruptcy unless the state government changes its policies towards the organisation.

APGENCO feels that instead of making profits in the region of Rs 300 crore, the present pricing policy adopted by the state government would result in the company incurring losses of over Rs 2,000 crore by 2006. If one were to take all the losses, that is, revenue as well as book losses, the total loss would be over Rs 4,000 crore.

APGENCO currently has a negative rating and this is hampering its future expansion programmes. An appeal to rescue the corporation has already been made by APGENCO to the regulator and chief minister N Chandrababu Naidu this week.

APGENCO came into existence in 1998-99 after the erstwhile AP state electricity board was split and corporatised into three entities with APGENCO handling the generation assets while transmission and distribution under APTRANSCO and distribution companies respectively (the revenue side of the business). The entire hydel and thermal power assets under APGENCO amounting to close to 5,000 mw make it one of the largest state government- owned power generating companies in India.

Speaking to FE from Hyderabad on the current situation, former power secretary and currently Principal of the Administrative Staff College of India, EAS Sarma, said the state government should create a level playing field for APGENCO, which is also one of the most technically efficient organisations.

Some of the costs that have been loaded on to APGENCO’s balance sheet include the principal and interest liability of provident funds and pensions of all employees employed under APSEB (till 1999) and interest repayment of vidyut bonds that APGENCO raised.

Under the reforms programme such interest costs had to be recovered through tariffs and not from APGENCO’s own resources. But instead of recovering these costs from retail consumer tariffs, APGENCO is servicing them through its depreciation provision and return on equity (ROE).

Incidentally, the state government did not allow depreciation and ROE for APGENCO for more than three years after reforms were initiated in 1999 as this would have resulted in an increase in tariffs. But even if these provisions have been allowed now, they are being utilised to service interest costs. According to experts, some of the measures are in violation of CERC’s guidelines and notifications and also go against the concepts of accounting practices.

When questioned on the issue of increase in tariffs, Dr Sarma contradicted the apprehension and said that capacity addition through APGENCO would be more cost effective for the state as even its new stations were cheaper than IPPs.

APGENCO, in its submission to the regulatory commission, points out that the government did not pay substantial amounts of subsidy due to APSEB, amounting to more than Rs 2,500 crore and instead opted for offsetting some loans for projects (amounting to Rs 1,400 crore) that are not even due for repayment.

APGENCO feels that if the state government had paid the subsidy after the transfer, the organisation would never have had to borrow through vidyut bonds to pay for its regular commercial obligations. APGENCO is now servicing these bonds through its depreciation provision as the state government is reluctant to allow these costs to be recovered through tariffs. The situation is the same when it comes to meeting servicing the interest costs on provident fund and pension bonds, which APGENCO is servicing out of its ROE as the these costs are not reflected in the retail tariffs. Interest costs on these two accounts alone are in the region of Rs 350-400 crore from FY 2003 to FY 2006.