Centre invokes TPAs as gencos eye Rs 96.8K-cr from defaulting states

With the unpaid bills of distribution companies (discoms) surging, central gencos are now taking drastic measures to recover money from state discoms.

From issuing notices and regulating power supply to invoking the tripartite agreement (TPA), gencos, backed by the Union ministry of power, are hardening their stand against consistently defaulting states/discoms.

TPAs are signed among central gencos, disoms and the Reserve Bank of India. Under the agreement, the central bank can deduct the defaulting amount from the accounts of states with the RBI. According to senior officials, the Union ministry of power has invoked the TPA with Jharkhand, Karnataka and Tamil Nadu to recover dues totalling Rs 30,087 crore.

The power ministry recovered Rs 714 crore from Jharkhand last month. The state government had objected to revocation of the TPA and even threatened to exit the TPA. The central government, however, has gone ahead to deduct the amount from the account of the state government.

At the same time, NTPC and other central gencos have also issued power regulation notices to several states. This entails the gencos regulating, or in worse case, stopping power supply to the concerned discom or state, if dues are not paid within 90 days of supply.

NTPC issued a regulation notice to Madhya Pradesh during the first week of September, after which a payment of Rs 486 crore was recovered from the state. Similarly, NEEPCO served a notice to Tripura to clear its dues immediately, failing which power supply to the state will be regulated.

THDC had issued notice to Uttar Pradesh for regulation of power in August over dues worth Rs 442 crore. Officials said UP Power Corporation had committed to clear dues in September. SJVN had already regulated power supply to Jammu & Kashmir in the past six months for several days for non-liquidation of outstanding dues.

In June 2020, the dues of discoms had touched a record high of Rs 1.3 trillion. In the same month, Union finance minister Nirmala Sitharaman announced a special liquidity infusion scheme for the ailing power distribution sector. 

The Rs 90,000-crore loan scheme was for discoms to clear their dues to power generating and transmission companies. State-owned lenders Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) lent Rs 45,000 crore each.

The scheme, however, had limited impact. After reducing minimally in March 2021, the dues started rising again from June as demand for power increased during the summer months. The total dues of the discoms against gencos stand at Rs 96,829 crore as on August 31. Last year, during the same month, the dues were Rs 93,908 crore.

The financially-beleaguered discoms have been falling behind in clearing their payment. ICRA Ratings, in a recent report, said the credit outlook for the distribution segment remains negative.

According to estimates by ICRA, the gross debt level of state-owned discoms at an all-India level is likely to cross Rs 6 trillion in FY22 from an estimated Rs 5 trillion in FY21. This is significantly higher than the pre-UDAY level of Rs 4 trillion. This increase would be because of the loans availed under the liquidity package. The official data on discoms’ debt is yet to be made available.

“While demand is expected to recover in FY22, discom finances are likely to remain under pressure owing to lack of tariff revisions, high distribution losses and rising subsidy dependence,” it said.

While the central gencos have been able to reduce their dues by almost 30 per cent in August 2021, over last year, private gencos have been reeling from defaulting payments. The dues of private power generating stations stand at Rs 46,138 crore against Rs 36,768 crore of central gencos.

As private gencos cannot regulate power or have a TPA, under their power purchase agreement (PPA), their unpaid invoices have piled up. Total invoices of private gencos, at 168, is more than double that of central gencos.

A senior power ministry official said, “In a recent meeting with independent power producers, the ministry asked them to ensure that the LC (letter of credit) mechanisms are in place and in case of defaults, regulation notices should be served to the discoms.”

Letter of credit is a prepayment mode for the discoms. Power supply is scheduled only after the discoms show LC issued by the banks against the power purchase.