Consumer indiscipline: Liquidity package fails to stem UP discoms’ dues to gencos

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October 21, 2020 7:15 AM

Also, in order to help the cash-strapped discoms, the power ministry has reduced late payment surcharges, a move could potentially provide a relief of about Rs 6,000 crore annually to them.

The over-dues — payment default of 45-60 days or more — of all state-run discoms in the country to power plants is seen to increased 52% annually to Rs 1.2 lakh crore at August end.The over-dues — payment default of 45-60 days or more — of all state-run discoms in the country to power plants is seen to increased 52% annually to Rs 1.2 lakh crore at August end.

The Covid-19 pandemic seems to have caused a further slippage in payment discipline among electricity consumers in several states, posing a renewed threat to the financial status of distribution utilities (discoms). Uttar Pradesh’s five electricity discoms, huddled under umbrella entity Uttar Pradesh Power Corporation (UPPCL), piled up an additional Rs 14,000 crore (40%) as over-dues to gencos during the first half of the current financial year. As a result, their over-dues to gencos rose from Rs 34,000 crore at end of FY20 to over Rs 37,000 crore by September end, despite these entities having paid Rs 10,500 crore received as soft loan from PFC-REC under a special liquidity facility to central sector gencos and private power producers.

The Union power ministry has recently increased the size of the liquidity package to Rs 1.2 lakh crore from Rs 90,000 crore planned initially; the government and PFC-REC have also been rather quick in sanctioning funds under the scheme (`1.1 lakh crore so far). Also, in order to help the cash-strapped discoms, the power ministry has reduced late payment surcharges, a move could potentially provide a relief of about Rs 6,000 crore annually to them.

However, even these steps appear to be inadequate to reduce the mounting dues of discoms to power producers meaningfully. A letter of credit (LC) mechanism has been in force since August 2019 to compel discoms to become more disciplined in meeting their payment obligations.

The over-dues — payment default of 45-60 days or more — of all state-run discoms in the country to power plants is seen to increased 52% annually to Rs 1.2 lakh crore at August end.

According to the PFC-audited data reviewed by FE, state-run discoms in the country suffered combined losses of Rs 61,360 crore in FY19. The losses had stood at close to Rs 57,000 crore in FY15. The audited figures corroborate the fact that the UDAY scheme, launched in November 2015, had had a short-term, sub-optimal positive impact on discoms’ financial health, but it failed to avert a relapse in FY19. The situation is seen to have worsened in FY20, although audited results are yet to be released. The pandemic is sure to have exacerbated the discoms’ financials.

UPPCL chairman Arvind Kumar told FE: “Of our total dues to gencos of Rs 34,000 crore as at March end, `21,000 crore was to central sector power producers, IPPs and renewable energy producers. Against a loan of `21,000 crore sought from PFC-REC under the Atmanirbhar scheme to clear the dues to these two categories of suppliers, half the amount (`10,500 crore) has been received and paid to these entities. In addition to the pending legacy dues of `13,000 crore to state government- run power PSUs, UPPCL has piled up another Rs 15,000 crore of power purchase liabilities in the first half of this year.”

The UP discoms’ overdues to gencos have been rising relentlessly, chiefly because of operational inefficiencies, including the discoms’ inability to reduce AT&C losses and the gap between the average cost of supply (ACS) and the average revenue realisation (ARR). While the AT&C losses stood at a whopping 30.30% in 2019-20, `against the UDAY target of 14.86%, the ACS-ARR gap stood at Rs 0.07 per kWh against the target of -0.06/kWh.

Another major reason for the high losses is the fact that while the state government has increased the supply hours, it has been unable to collect the revenues efficiently. In 2019-20, only 38.5% of 209 lakh rural consumers paid their electricity bills, and since April this year, only 17.73% of such consumers have paid at least once. In urban areas, only 72.5% of 72 lakh consumers have paid electricity bills at least once since April.

Moreover, UPPCL also faces the problem of having a large number of unmetered connections. Of the total consumer base of 281 lakh, about 26 lakh connections are unmetered. And out of these unmetered connections, private tube wells consumers account for 46% (11.95 lakh).

“Increase in supply hours for agriculture consumers clubbed with low tariffs and poor collection efficiency have resulted in further widening of the cash gap,” an official said, requesting anonymity, adding that increasing revenue collection from rural consumers is a monumental challenge and that all efforts at disconnection drives have been rendered ineffective due to the illegal restoration by many consumers.

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