By Sunil Wadhwa
Indian discoms owe over Rs 80,000 crore to the power producers. Barring a small amount, all of it is owed by state-owned discoms. This would be for almost 27,000 crore units at the rate of `3/unit of power, which was, in turn, supplied by discoms to consumers. If discoms collected an average of R4/unit from their consumers, the total collection should have been almost R108,000 crt. Net of the ATC loss of 25%, the collection would still stand at around Rs 80,000 crore.
So, where is that money gone if it has not been paid to the independent power producers (IPPs)? Maybe, discoms couldn’t collect all of this. Or was the rate much lower than Rs 4/unit? Or is it that discoms’ other expenses, like on salaries, loan interest burden, etc, meant that they could not pay power suppliers?
When IPPs, in turn, end up defaulting on their loans, the lenders drag them to NCLT under the IBC code, promoters lose their projects to new investors and banks take massive haircuts. But that doesn’t solve the real problem as it doesn’t at all change the the way discoms run. What is the big deal that NCLT does in the resolution plan for IPPs? The process just addressed the symptoms temporarily and not the root cause, which is the discoms’ inefficiencies.
I keep thinking why discoms can’t reform while under the state control and, every time, I get more and more convinced of the reasons as why there is no incentive to perform.
There is no time left to further this agenda given the time-bomb on which this sector is sitting. We have to have try some quick but long-term solutions. My gut feeling is that the NCLT-IBC route could be one such solution. IPPs should move the NCLT for resolution of their dues under IBC, banks should cooperate as well. The recoverability of amounts for banks and IPPs is like an ice cube. The more you wait, the smaller it will become. Good money generated by discoms from loans and power purchases from IPPs will continue to put into bad use.
Isn’t it the time to bite the bullet and stop the loss and further bleeding? Let qualified private players take over the discoms from the resolution professional appointed under IBC at a value that is supported by the discoms’ current retail tariffs. The best part is that state governments can’t take over their own discoms under the IBC route. If state governments wants to retain their discoms, the only way for them would be to pay the lenders’ dues and that of the IPPs.
The outcome can not be worse than what it is today. Banks might also get to mitigate their haircuts at the IPP-end in the process, in addition to resolving their dues, albeit at a loss in the case of the bleeding state discoms.
It is my experience that, many times, when the government also finds a merit in a solution on which it can’t proceed due to political compulsions or unions, etc, it prefers a court directive to do so. This also holds true for reforms through privatisation.
When we have mechanisms such as IBC, we should leverage it. I hope some IPPs and banks will think seriously about this option. This will, however, involve a lot of courage on the part of the creditors and the conviction that it will work. Also, it will need support, passive or active, from important stakeholders who should appreciate the purpose and the outcomes that it will bring about in terms of better management and, therefore, not create hurdles in the implementation.
The resolution professionals to be appointed in the process should be pragmatic enough to understand how the transfer of discoms to private sector would go a long way in resolving the much bigger stress being created in the sector by discoms. It is the discoms revenues which actually pays for the costs and debts of the entire value-chain be it generation, transmission, trading. Discoms are the Gangotri (the origin) of the cash-flow for the entire sector. If that dries up, the whole system gets affected.
The writer is Former MD GE T&D India Ltd, & former MD, Tata Power Delhi Distribution Ltd