A section of the industry believes that NEDCL can address the issue of untimely payments.
The power sector is waiting to see if National Electricity Distribution Company (NEDCL) — the joint venture between NTPC and Power Grid Corporation (PGCIL) to foray into the electricity distribution business on a pan-India basis — can address real challenges of the business segment which is touted as the weakest link in the power supply chain. Experts point out that since states have more say in power policies than the Centre, it remains to be seen how they treat this Central government-owned entity.
“The move signals that the central government is acknowledging that state-run discoms are turning non-viable by the day,” said Sanjay Kumar Banga, CEO, Tata Power Delhi Distribution (TPDDL), which distributes electricity in north and north-west Delhi. However, Banga said, “Neither of the two companies has any significant experience in power distribution and it would have made more sense if they joined hands with private firms which have worked on-ground.”
The idea of NEDCL has been floated at a time when cumulative financial losses of state-owned power distribution companies (discoms) grew 44% to Rs 21,658 crore at the end of FY19, reversing the declining trend since the UDAY scheme was launched in November 2015. Dues of discoms to power producers stood at Rs 38,023 crore at the end of FY19, up 60% year-on-year.
A section of the industry, however, believes that NEDCL can address the issue of untimely payments. “A national level agency is certainly preferred over state utilities and is expected to introduce certainty of payments for power purchase among many other things,” Venkataraman Rajaraman, director – infrastructure group, India Ratings and Research, said.
Financially-weak discoms trigger a domino effect in the sector, as they are unable to pay power producers on time, who in turn fail to service their debt. Defenders of discoms argue that they have been the victim of inadequate tariff hikes by electricity regulators.
“This is a bold and useful attempt if the new entity is able to address real challenges of the distribution sector viz, under-investment in network, regulatory uncertainty and political economy,” said Kameswara Rao, leader – energy, PWC India. “In parallel, the government should hasten the progress of supply competition so that consumers can benefit from improved demand conditions in the distribution sector,” Rao said.