Is there a glimmer of hope for private independent power producers (IPPs) as they face real threats after the Reserve Bank of India (RBI) recently issued revised guidelines for early detection and resolution of stressed assets?
Is there a glimmer of hope for private independent power producers (IPPs) as they face real threats after the Reserve Bank of India (RBI) recently issued revised guidelines for early detection and resolution of stressed assets? The Association of Power Producers (APP), in a letter to the RBI Governor, has said that the stress in the sector is largely due to irregularity in payments from state-government-owned power distribution companies (discoms), regulatory delays, and coal supply constraints, which are beyond the control of power firms. The IPPs are also not compensated for the extra money they have to spend to buy coal at higher prices due to insufficient supply (only 60% of requirement) by Coal India.
Two important political announcements signal an improved uptake of electricity from private producers: the prime minister announced that, with the electrification of Leisang village in the Senapati district of Manipur, India has now achieved total electrification of its 597,464 inhabited villages. Replying to the criticism that this claim is based on a ‘restricted’ definition of electrification, power minister RK Singh declared that his government’s next milestone, of bringing electricity to all the households across the country under Saubhagya scheme, will be achieved not by March 2019, but by December 2018, and if necessary, by amending the electricity law.
A major problem with India’s rural electricity situation is found in the distribution sector. Rural tariffs mostly do not cover the total cost of generation, transmission, and distribution; hence, the distribution companies have little motivation to increase quality power availability to rural areas.
Prayas Energy Group (a Pune based consumer NGO), has independently developed a portable device which also includes a SIM card to communicate data remotely to monitor the supply quality and provide evidence-based, verifiable feedback about the quality of supply to all stakeholders in the electricity sector. Funding agencies under the ministry of power—the Power Finance Corporation and Rural Electrification Corporation Limited—that also monitor the performance of various government schemes could take this initiative of Prayas onto a national scale. A new ‘Quality of Supply App’ could be used on a statistically random basis to monitor not only reliability but quality of power to judge state discoms performance in the implementation of ‘Saubhagya’ scheme. Quality power to all will certainly enhance demand for electricity, thereby rescuing IPPs.
RBI needs to re-visit the Supreme Court judgement in the Mundra case, in which the Court ruled against any compensatory rates for suppliers of electricity (using imported coal) due to change in international regulations. While reporting this judgment widely, the media overlooked one very important aspect of the order: The Court also upheld the Central Electricity Regulatory Commission’s (CERC’s) regulatory power to address the tariff issues arising in competitively bid projects under Section 63 of the Electricity Act 2003.
In its 2013 order, the central commission saw a lot of merit in the generators’ plea that promulgation of the Indonesian regulations has led to abnormal increase in the cost of generation of electricity, making their projects unviable. Unless the concerns of the generators are addressed, the possibility of them defaulting in discharging their obligations under the PPAs due to the perceived financial burden cannot be totally ruled out, and that will affect the interest of the consumers.
In that event, the state utilities will be required to invite fresh bids to meet their requirement of power and, till the selected project or projects are commissioned, the consumers would have been deprived of power at reasonable rates. It should not be forgotten that, for such large projects, public financial institutions contribute 70 -80% as loans. If running a power project becomes unviable for investors, then lenders will be left with non-performing assets (NPAs).
In short, RBI guidelines for defaulting power generators must factor in the above issues and include solutions to make the assets created with public money productive. This will help recover the loans of public financial institutions, and achieve the national goal of power to all.
The author is Former chairman, CERC