Making UDAY 2.0 deliver: State electricity boards and states must face large penalties to learn lesson

By: | Published: December 29, 2018 3:39 AM

SEBs and states must face large penalties to learn lesson.

Cash-strapped SEBs aren’t signing long-term power purchase agreements (PPAs) with generators who, in turn, are not in a position to repay their bank loans as they have no steady revenue stream.

Even when it first began, the UDAY scheme to turnaround stressed state electricity boards (SEBs) looked too ambitious; while the plan envisaged tariff hikes, these were to be kept to a minimum since the fulcrum around which UDAY worked was a sharp fall in ATC losses, to 15% by March 2019. As it happens, the latest data, puts this at 22% and it is much higher in states like Bihar (38.9%), Uttar Pradesh (33.1%) and Jharkhand (36.9%). How poorly UDAY has done can be gauged from an interview power minister RK Singh has given Business Standard where he has said UDAY focused on reducing the debt burden of SEBs—under the scheme, bank debt at 13-14% was replaced by 8%-interest state government bonds—while UDAY-II will focus on loss-reduction by using prepaid meters, special police stations to catch electricity thieves, etc.

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It is not just the ATC losses where UDAY’s failure can be seen, this is evident from the fact that SEBs are now delaying payments to suppliers. Between March and August this year, SEB dues to generating companies rose from Rs 16,564 crore to Rs 26,500 crore; of this, Rs 17,761 crore is due to private sector firms. There are, in addition, ‘regulatory dues’, or increases in tariff due to new government levies such as a green cess or a port congestion surcharge. These add up to another Rs 18,506 crore in the case of private sector gencos. This day, is why around 52,000 MW of power capacity is deeply stressed right now. Cash-strapped SEBs aren’t signing long-term power purchase agreements (PPAs) with generators who, in turn, are not in a position to repay their bank loans as they have no steady revenue stream.

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A long-term solution that forces SEBs to supply electricity to those who want it and pay their suppliers in time will prevent lakhs of crore of bank debt from turning into NPAs since power producers will repay their dues on time. One solution is to impose big penalties on SEBs for non-supply of electricity; this will force them to sign PPAs. The other is to sign an agreement whereby the dues owed by the SEBs are automatically deducted by RBI from the accounts of the state governments and paid to electricity suppliers. When such high penalties are imposed and the cash balances of state governments are on the line, they will themselves petition their electricity regulators asking for tariff hikes and also work at reducing theft which has large political patronage. If this is not done, with large bank outstanding dues from power plants, we will remain stuck in the decadal cycle of debt write-offs using public money to keep the power sector going till the next crisis. Indeed, as the government works on providing electricity to all households and increases the number of hours of supply, SEB losses will sky-rocket. Indeed, while setting up dedicated police stations for catching electricity thieves is a good idea, a better one would be to pay subsidies directly to farmers and others and sell electricity at market rates. Once this is done, as in the case of LPG, the temptation to steal will automatically reduce.

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