State-run electricity distribution companies (discoms) of Maharashtra and Tamil Nadu have opposed the central government panel’s recommendation to make advance payments to power producers. The recommendation was made by a committee which was constituted by the Union power ministry ‘to look into the issue of delayed payments by discoms’ to power generators.
Delayed payment from discoms have been cited as one of the reasons behind the rising stress in the sector. This impairs the generating company’s ability to service debt and exhausts their working capital. Inability to service debt leads to lower credit ratings and higher interest rates.
According to the committee’s report, most of the stressed independent power producers (IPPs) are paying interest at 12-13% even after 4-5 years of operations. While banks estimate three month’s working capital requirement of a typical 1,000 MW power plant at Rs 980 crore, the real cost comes at Rs 1,380 crore, IPPs informed the committee.
Refusing the advance payment proposal, representatives from Maharashtra discoms said that ‘the problems of gencos mainly lie on the delay from the coal supplier, railway and to some extent on grade slippage, and hence ‘discoms solely can’t be blamed for any loss on account of these’. The chief managing director of Tamil Nadu’s electricity board said that ‘if pre-payment to gencos is made mandatory, discoms may have to opt for load shedding in the absence of enough cash to make pre-payment’, adding that ‘the basic problem faced by the discoms is that revenue is not enough to meet the expenditure’.
Discoms face cash-flow issues because they do not receive subsidies from the states on time and the state electricity regulators raise consumer tariffs infrequently and inadequately, leading to under-recoveries. Difficulty in recovery of dues from rural consumers was also cited as an issue.
Discoms’ financial losses stood at Rs 28,369 crore at the end of FY19, up 88.6% year-on-year. Overdues — payment default of 60 days or more — from discom to power producers were at Rs 54,821 crore at July-end. Out of this, Rs 19,895 crore, Rs 10,076 crore and Rs 5,987 crore were from Rajasthan, Tamil Nadu and Uttar Pradesh, respectively.