PFC links aid to UP discoms with revival road map

Written by Deepa Jainani | Lucknow | Updated: Sep 30 2011, 07:26am hrs
Power Finance Corporation (PFC) has demanded a timeline from Uttar Pradesh for improving the financial health of its power distribution utilities if it wants more funds from the financial institution.

In a letter to UP energy secretary Navneet Sehgal, PFC CMD Satnam Singh has said the company has already committed a significant exposure amounting to R15,359 crore to power utilities in the state, and a sum of R7,733 crore is outstanding till June 30 this year. The distribution utilities that have maximum outstanding dues to PFC are Uttar Pradesh Rajya Vidyut Utpadan Nigam, which owes R5,791.57 crore, UP Power Transmission Corporation (R1,282.39 crore), Dakshinanchal Vidyut Vitran Nigam (R183.45 cr) and Paschimanchal Vidyut Vitran Nigam (R177.35 crore).

The letter states that the gap between the average cost of supply (ACS) and annual revenue requirement (ARR), huge accumulated losses, high aggregate technical and commercial (AT&C) losses and the non-availability of audited accounts are among the most worrisome factors. While the gap between ACS and ARR on subsidy received basis stood at 94 paise per kwh in 2009-10, the accumulated losses stood at R22.824 crore on March 31, 2010. The AT&C losses, too, have increased from 36.22% in 2005-06 to 39.65% in 2009-10.

There is a need to initiate action on the part of UP government to correct the aforesaid status, the letter says, adding the resolutions passed in the state power ministers conference in July, if implemented, would certainly have a positive impact on the financial health of the states power utilities.

The steps recommended in the conference include state governments should ensure accounts of the utilities are audited up to 2009-10; ARR petition should be filed every year; ensure that the difference between ARR and ACS is not only bridged but is positive to generate internal surpluses that can be used for network expansion and maintenance; the state governments should clear all outstanding subsidies to the utilities; convert loans due from the state government to the distribution utilities as state government equity to ensure capital infusion and improvement in net worth of the utility; take effective steps to reduce AT&C losses to less than 15%.

Speaking to FE, Sehgal said steps were being taken for improving the health of these utilities. While last year we improved the recovery by R3,000 crore, this year we aim to make recoveries to the tune of R4,000 crore, which will be a record. Further, the government has increased the subsidy by R1,500 crore. This would also go a long way in improving the overall health of the power sector in the state, he said.

Regarding bridging the gap between the ACS and ARR, Sehgal said that since this would be an election year, there was very less likelihood that there would be any substantial hike in the tariff. But he said the balancesheets of the utilities would be finalsied soon. The task was held up so far as the separation of the transmission and distribution companies had not been approved by the cabinet. But now that we have got the approval, the balancesheets would be finalised soon, he said.