It is not clear if this will stand legal scrutiny, but the central government would be well-advised to broaden the scope of its attempt to fix the power sector.
It is not clear what action, if any, the central government plans to take to ensure the Andhra Pradesh government reconsiders its decision to revise the renewable energy contracts signed by the Chandrababu Naidu government since, evidently, the state has not heeded the Centre’s advice. One option, Mint reported earlier this month, was that the central-government-owned NTPC would buy around 300 MW of renewable power from the state, but the story has not been confirmed by either NTPC or the Andhra government. Another option, Mint reports, is to try and restrict either supplies of coal or, possibly, even loans from big electricity PSU funding agencies PFC and REC. Such a plan, it appears, is not to be restricted to Andhra Pradesh, but is valid for any state that tries to renege on contracts/PPAs.
It is not clear if this will stand legal scrutiny, but the central government would be well-advised to broaden the scope of its attempt to fix the power sector. The central government’s Praapti website, for instance, says that state electricity boards/discoms owe power generators (gencos) Rs 81,000 crore; of this, Rs 71,673 crore is beyond the allowed grace period of 60 days and represents a 45% jump over that a year ago. Indeed, the Association of Power Producers says the Praapti data is not complete—it shows the dues to private gencos at Rs 23,000 crore—since it does not include the late payment surcharge of Rs 6,000 crore, nor does it include the ‘change in law’ claims of Rs 17,000 crore. The latter refers to hikes in power costs due to a change in the law, say, a new cess; these have to be paid by the SEBs/discoms since even the electricity tribunals have okayed this.
These late payments, in turn, have ensured that the private sector gencos are finding it difficult to service their loans to banks. The SEBs remain cash-strapped since, despite the Uday promises, they either did not cut losses by enough or did not raise tariffs to economic levels. As a result, they are also buying less electricity which, in turn, has further depressed the earnings of the gencos; around 14,700 MW of power plants also do not have PPAs because cash-strapped SEBs aren’t signing fresh contracts. Ideally, as happened in the early 2000s for PSU utility firms, the government should force the SEBs to sign a tripartite agreement that allows RBI to deduct any electricity overdues from the accounts of state governments with it—all tax devolutions from the central government flow into this account—and then pay it directly to the genco. While Uday was an attempt to ensure SEBs reformed by giving them a very generous interest rebate—banks were asked to replace loans on which a 12-14% interest had to be paid with state government bonds that paid 8.5% interest—it had no real penalties for states that failed to reform. It is time to penalise states that don’t pay suppliers, not just the states that want to renege on contracts with foreign investors; the interests of Indian investors also need to be safeguarded.