India's power distribution companies are facing a tough time, thanks torising debts, fuel supply shortages, corruption, red tape and high tariffs which were kept artificially low by populist politics all these years.
BSES Rajdhani Power Ltd (BRPL),a power distribution company in Delhi run by the Anil-Ambani controlled Reliance Infrastructure Ltd, is likely to stop cutting power supplies for a period of four hours at peak timesas they do not have the money to pay for fuel. Why? Because, though the tariffs they are permitted to charge by a state electricity regulator have risen nearly 70 percent since 2002, the cost of buying electricity from generation companies and supplying it has shot up by more than 300 percent.
As a result, BRPL now owes $770 million in late payments to more than a dozen power utilities. Two of these, Pragati Power Corporation Ltd and Indraprastha Power Generation Company Ltd, have threatened BRPL with an ultimatum to either pay up or lose the power. Both the generators are run by the Delhi state government.
Gopal Saxena, the chief executive of the power distribution company, tolds Reuters,"We are faced with a Hobson's choice: I have to supply power 24/7. I don't have the money to pay. Now if I do not pay, somebody is going to cut off the power, or somebody has to pay the cost."
But it's not just Delhi; power firms all over the country are suffering major losses. To add salt to their wounds, banks are rethinking on the loans they give to these firms as they are unlikely to repay it.
The Chhattisgarh government's decision to not buy 30 percent of power generated from new plants as promised earlier has come as a jolt to private power producers such as GMR Infrastructure and DB Power that have invested heavily in the state.
The state government's move will jeopardise the financial viability of projects being set up at a total cost of about 42,000 crore to generate 7,000 mw power,notes anEconomic Times report.
A top official of the Chhattisgarh State Power Trading Company (CSPTC) told ET, "We had planned that we would buy the power and trade it for profit. But since we signed the agreements, coal prices have gone up, so trading margin would be under pressure."
In 2006, the state government had sought private investment by committing to buy 5 percent of output at a nominal cost that would account for only cost of fuel, and another 30 percent of output at a tariff determined by theCentral Electricity Regulatory Commission.
The government signed a memorandum of understanding with power companies that would have translated into projects totalling 60,000 mw. But due to unavailability of coal, land acquisition and environment clearance, only 20,000-24,000 mw of projects actually took off.
However,the government has now decided that it would buy only the 5 percent power at nominal rate but not the balance 30 percent at regulated tariffs.
But companies are not up for that because if they sell 5 percent power to Chhattisgarh at a nominal rate, they will have to make up for the loss incurred on it by passing on the burden to the balance output, making power more expensive and less competitive.
Meanwhile, Lanco Infratech is already in talks with bankers to get its Rs 9,000-crore domestic debt restructured.
And that might not be a one-off instance of business stress leading a company to corporate debt restructuring (CDR). According to this Business Standard report, many power assets bagged on lowest tariff quotes under long-term power purchase agreements are expected to end up in a queue for debt recast.
According to estimates, Rs 50,000-crore loans for power projects totalling over 15,000 Mw of capacity could become "troubled loans."Fitch Ratings' Senior Director S Nandakumar says around 7 percent of the loans for the companies his firm rates has been downgraded to the 'C' or 'D' level over the past six months.
Many Indians see cheap or free power as a right, not a privilege, and raising tariffs is especially difficult as the country gears up for a general election due by May.
The Manmohan Singh government has attempted to fix the financial health of distribution companies with a $32 billion federal bailout package that came with strict riders. But, private players are not eligible for a slice of the rescue package.
The inability to pass on the rising costs of power generation has also hit utilities, including Adani Power Ltd and Tata Power Company Ltd, both of which posted losses in the first quarter of the current fiscal year.
What are the problems?
Although India faces a power deficit of about 10 percent, power producers are finding it difficult to sell their output. Beleaguered power distribution companies are refraining from signing new PPAs and managing shortfall by load-shedding.
The rupee's depreciation has added to the problems of generation companies, which are having to import coal due to short domestic supply. Besides, state electricity boards' weak financial health and reduced power-purchasing capabilities have lowered demand for power.
Loans to the infra sector are also no longer in banks' 'good loan' books. "There was some hope for power sector units (thermal power). But chances of getting fuel linkages look remote. Lenders will have to restructure their debt. That's the only way to contain the hit on banks' balance sheets," anIDBI Bank official told Business Standard.
If these distribution companies keep incurring losses, it may mean no electricity for days as they have to cut power supply.
(With Reuter reports)
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Updated Date: Dec 20, 2014 21:42:56 IST