Regulatory delays: Power ministry asks CERC to speed up clearing dues

By: | Updated: August 29, 2018 5:57 AM

Regulatory dues amounting to Rs 18,000 crore are yet to be paid to power companies. The ministry’s directive, if complied with, will help the resolution process and make some stressed units more attractive to potential buyers.

Union power ministry has directed the Central Electricity Regulatory Commission (CERC) to compute the increase in tariffs that additional (post-power purchase agreement) taxes and duties would have necessitated within 30 days after a generator filed the petition for such a revision.

While banks have stepped up efforts to find resolutions for stressed power assets under the Reserve Bank of India’s (RBI) directive and insolvency proceedings are to start for units with a combined capacity of 32 gigawatts (GW), the Union power ministry has directed the Central Electricity Regulatory Commission (CERC) to compute the increase in tariffs that additional (post-power purchase agreement) taxes and duties would have necessitated within 30 days after a generator filed the petition for such a revision. Once a generator’s plea is accepted under ‘change in law’ condition, other generators with the same demand should also get similar benefits, without filing separate petitions, the ministry said.

Regulatory dues amounting to Rs 18,000 crore are yet to be paid to power companies. The ministry’s directive, if complied with, will help the resolution process and make some stressed units more attractive to potential buyers.

Lanco’s 1,200 MW Anpara plant, which is currently on way to the National Company Law Tribunal (NCLT), was expecting accumulated dues of Rs 800 crore to be cleared by the Uttar Pradesh distribution companies (discoms) after the state regulator had approved the tariff pass-throughs due to higher coal costs in August 2017. If that payment was cleared on time, the asset could have serviced its debts and save itself from facing insolvency and bankruptcy proceedings, Ramanuj Kumar, partner, projects finance at law firm Cyril Amarchand Mangaldas noted. The UP discoms approached the electricity appellate tribunal (Aptel) where an order is yet to be announced.

Similarly, CLP’s 1,320 MW Jhajjar plant in Haryana is still awaiting payment clearance from the state discoms even after the CERC’s approval in January 2016.

Haryana discoms has also approached the Aptel on the issue after CERC’s order. Also, Tamil Nadu discoms have recently filed a petition in Aptel challenging the pass-through of the Rs 400-per-tonne goods and services tax compensation cess (erstwhile clean energy cess) on coal. The cess is 20% of fuel costs.

“The Association of Power Producers (APP) welcomes the directions issued by the ministry of power,” said Ashok Khurana, director general, APP, adding that “such provision should also be included in the tariff policy which would ensure that state-owned discoms also abide by them.”

The directive comes as a respite for gencos after the Allahabad High Court on Monday did not give them a special waiver from the RBI’s February 12 circular. Promoters of most among the 34 identified stressed power projects could lose ownership of the assets with this decision. A large chunk of the 34 projects — with a combined capacity of about 39 GW and banks’ exposure of Rs 1.75 lakh crore — would now take the insolvency route.

Regulatory delays impede cash flow for power producers, which sign power purchase agreements (PPAs) with various discoms with provision for protection from ‘change in law’. However, petitions claiming relief for change in law often take two to three years. Gencos claim that while this cost is likely to be realised in a period of over two months, it would leave these financially stressed entities without funds. In such cases, working capital is borrowed from banks, entailing additional interest cost of 12%, but this additional cost is not likely to be paid by discoms.

The parliamentary committee on energy recently observed that “the decisions of the regulatory bodies regarding change in law are not honoured by discoms and various regulators interpret change in law differently leading to the confusion in the sector”, recommending that “appropriate steps should be taken to ensure that there should be consistency and uniformity with regard to orders emanating from the status of change in law”.

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