How RBI can be used to fix state-run power distribution companies

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Published: July 11, 2020 5:01 AM

That’s the reason they confidently guarantee the borrowings; on average, power utilities account for over 60% of total outstanding guarantees given by the states.

For instance, although there is an agreement that calls for debiting a state’s balances with RBI if its discom fails to pay PSUs like NTPC within a specified time, this doesn’t seem to have troubled the states. State governments remain complacent in the knowledge they will always be bailed out, else the lenders, to whom they owe a staggering Rs 4.8 lakh crore, will be in big trouble.

State-run power distribution companies (SEBs or discoms) are among the country’s errant and pampered entities. They are bailed out time and again as they fritter away precious taxpayer money; discom losses in 2018-19 jumped 83%, to Rs 61,360 crore—a level seen in the pre-UDAY days. The generous UDAY scheme of November 2015 allowed 75% of the discom debt, of about Rs 2 lakh crore, to be converted into state government bonds with banks taking a hit. But, none of the efficiency targets that accompanied the financial concessions has been achieved. Aggregate technical and commercial (AT&C) losses were at an elevated 22% in March 2019, only slightly lower than the 23.9% in 2015-16, although these were to be brought down to 15%. Again, the ACS-ARR gap was to be eliminated, but it remains at Rs 0.52/unit, with Andhra Pradesh reporting a gap of Rs 2.67 /unit for 2018-19.

Not only have discoms stayed operationally inefficient, their billing systems remain weak, and the state governments are reluctant to raise tariffs; electricity used by farmers—a large vote bank—is hugely subsidised, but the discoms are rarely compensated on time. State governments remain complacent in the knowledge they will always be bailed out, else the lenders, to whom they owe a staggering Rs 4.8 lakh crore, will be in big trouble.

That’s the reason they confidently guarantee the borrowings; on average, power utilities account for over 60% of total outstanding guarantees given by the states. For some states, the levels are over 80%. An upcoming scheme aimed at improving the performance of discoms envisages AT&C losses at 12-15% pan-India and a total elimination of the ACS-ARR gap by FY25. The Centre should release funds only if the efficiency targets are on track. Else, the generous Rs 90,000 crore loan package to help discoms repay their dues to gencos, too, will have been in vain. Before the second tranche of this loan is disbursed, discoms need to prove they are on track to clear their dues in three years, and that they have installed pre-paid smart-meters in government buildings.

The fact is that even with penalties in place, states are getting away. For instance, although there is an agreement that calls for debiting a state’s balances with RBI if its discom fails to pay PSUs like NTPC within a specified time, this doesn’t seem to have troubled the states. Although some state-owned discoms owed NTPC large sums, of around Rs 10,000 crore, at the end of March, for reasons best known to it, NTPC did not use the RBI route. This time around, the government should make such a rule for private sector generators too; unlike PSUs who can be persuaded not to approach RBI, the same won’t be true of the private sector power producers who sell electricity to SEBs/discoms. Only when the states’ cash balances are taken away will they wake up to the need to fix the SEBs they run.

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