Let RBI deduct SEB dues from state govt accounts

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Published: July 11, 2019 12:37:15 AM

While talking of how the power sector’s dues to banks are Rs 1.74 lakh crore and the slow pace of resolving stressed assets, the central power ministry flags another serious problem, that of falling capacity utilization levels.

It is time to ensure that all their dues—to banks, power producers, etc—are automatically deducted from their accounts with the RBI; anything else less drastic will be cosmetic.It is time to ensure that all their dues—to banks, power producers, etc—are automatically deducted from their accounts with the RBI; anything else less drastic will be cosmetic.

Though the ministry of power is generally quick to come down on news/analyses that suggest all is not well with the sector even after the Uday reforms package—this saw banks slash lending rates to state electricity boards from around 14% to 8.5%—a recent presentation by power minister RK Singh to power sector officials of various state governments suggests that the problem is quite severe. For one, the central government wants to create an oversight committee to ensure state electricity regulatory commissions (SERCs) do their job properly. While it is not clear what powers such a body will have, or whether the centre can even mandate such bodies unilaterally, according to an Icra report, while the median tariff hike at the all-India level was 8% in FY15, this fell to 4% in FY16 and FY17, and then to 3% in FY18 and a mere 1% in FY19, a year in which SEB losses rose 44%, to Rs 21,658 crore as compared to Rs 15,049 crore in FY18; and just 15 SERCs have passed orders for tariff hikes so far in FY20, adding up to hikes of around 0.9%. It is hardly surprising, then, that the gap between the costs and tariffs of electricity are rising.

Nor is it clear than the central government can do anything to force SERCs to discontinue the practice of creating what are called ‘regulatory assets’. When certain costs need to be passed on to consumers but the SERC feels these will result in a very high hike in tariffs, some of these are parked away as ‘regulatory assets’; these are, in a sense, IOUs from the state’s consumers to government-owned state electricity boards (SEBs). Till FY16, or the period before Uday started, India had Rs 92,500 crore of ‘regulatory assets’ and these rose to Rs 117,000 crore till FY19, the ministry’s presentation acknowledges; these are around Rs 135,000 crore right now. Apart from saying that SERCs must hike tariffs to repay these IOUs within a few years, if the Centre bans fresh IOUs, as the presentation recommends, this means power tariffs will have to rise sharply each year. As a result of tariffs not being hiked adequately, on a regular basis, the presentation acknowledges that while SEB dues to power generators are around 90 days on average, it is a whopping 9 months in some states and for some power generators.

While talking of how the power sector’s dues to banks are Rs 1.74 lakh crore and the slow pace of resolving stressed assets, the central power ministry flags another serious problem, that of falling capacity utilization levels. With SEBs too cash-strapped to buy enough power—when each unit of power is sold at a loss, SEBs have a vested interest in not growing supplies aggressively—the plant load factor (PLFs) of thermal units has fallen consistently over the decade, from 77.5% in FY10 to 61.1% in FY19. Worse, with 130,000 MW of renewables capacity likely to come up by 2022, it is estimated that day-time PLF of coal-based plants could fall below 50% in 4-5 months of the year; that could trigger another round of stressed assets. The problem with all power sector packages so far, including Uday, is that state governments have been given generous financial aid—Uday forced banks to slash interest rates—without any onerous reform commitments. It is time to ensure that all their dues—to banks, power producers, etc—are automatically deducted from their accounts with the RBI; anything else less drastic will be cosmetic.

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