From the Cover Story titled “Burn Ambitions”:
If there is an apparent sliver of hope, it’s over discoms — the Cabinet
Committee on Economic Affairs’ nod to recast their debt of Rs 1,20,000
crore. Matters had come to head. In the absence of cost-reflective
tariffs (a political hot potato), discoms financed the interest on loans
through more of the same. The RBI asked banks to apply the brakes on
loans to discoms. “We have decided to stop generation, but we cannot
afford to take a deferred payment as 80 per cent of our cost (of power)
is for buying coal. We pay CIL through a letter of credit and cannot
afford this. We can’t compromise,” says NTPC’s Choudhury.
…According to Crisil, nine states — Tamil Nadu, Andhra Pradesh,
Rajasthan, Punjab, Haryana, Bihar, Uttar Pradesh, Madhya Pradesh and
Jharkhand — account for 85 per cent of discoms’ losses; their combined
debt accounts for 80 per cent of all such debt. And these nine states
can swing fortunes at the hustings; they send 292 MPs to Parliament,
53.77 per cent of the total.(Saya Essar Energy’s CEO, Naresh Nayyar) “We do not want to commit capital unless we have more clarity on
regulatory approvals.” A senior banker admits to a “moderation in
investment plans”. State Bank of India has turned selective — major
sanctions in 2011-12 were to Neyveli Lignite Corporation (Rs 2,500
crore) for 1,000 MW and to Meja Urja Nigam (Rs 2,000 crore) for 1,320
MW.…Balakrishnan says there was good interest from PEs for two years
(2009-11). “They have invested around $2-3 billion with another
commitment going up to $5 billion. But PE funds have also gone shy (of
the sector).”
Interview with Montek Singh Ahluwalia on the immediate and long-term implications of bailout for State Electricity Boards (SEBs)
From the article by Anil Razdan former secretary, Ministry of Power:
Distribution being entirely in the state sector, the restructuring
scheme will serve as a reminder to state governments to assume ownership
of utilities as the states are required to take over the loans as
equity, and securitise the bonds to be issued by the discoms. FIs have
been asked to provide a moratorium on loan repayments so as to give the
discoms some time to get their act together and avoid penal interest.
The move would also require strict discipline on the part of states
because they are already guided by the overdraft constraints mandated by
the Fiscal Responsibility and Budget Management (FRBM) rules. The
states will then have no option but to resort to an increase in tariffs
as they will be obligated to pay interest on the bonds they issue.
However, it is better to increase tariffs than to have a power crisis.
Debt
apart, the extent of aggregate technical and commercial (AT&C)
losses is unacceptable, even if we assume the national figures to be 27
per cent. The figure should be brought down to at least 15 per cent over
the next two years and, in cities, this should come down to single
digits, as is the norm in the developed world.…The power minister is reportedly drafting an
Electricity Distribution Responsibility Bill for enactment by states. If
all these measures to work, fuel supply must be assured to generating
companies so that they achieve maximum capacity utilisation. There is
also need for consumers to be regularly educated on the economics of the
power business.
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