Liquidity support helps discoms clear overdues, but they keep mounting

A year after Covid-relief measures kicked in, pending dues to power generation companies have declined, but remain tall, with an upside risk from weakening monthly clearances

In May 2020, two months into the nationwide lockdown that hit demand and paying abilities of people, India’s finance minister announced one-time liquidity support of Rs 90,000 crore to ailing power distribution companies (Discoms), some of whom were on the verge of default. The government later topped it up to Rs 1.3 trillion, providing a cushion to whom the discoms owe money: power generation companies (gencos). 

This was a much needed measure, rather, an imperative. In just about two years, the amount overdue towards a set of gencos, private and renewable included, grew more than 5x.   

In absolute terms, dues that have passed the 60-day deadline to central government-run power gencos, independent power producers and renewable power generators had bloated from Rs 17,000 crore at the end of March 2018 to Rs 90,000 crore in June 2020. 

From this point, the effect of liquidity support seems to have made an impact. The overdue amount reduced gradually, which now stands at a bit above Rs 68,000 crore, at the end of April 2021.

This includes data published by the Ministry of Power on its PRAAPTI portal. It does not contain data on dues towards state-government run gencos, which are at a way higher level than this. A government document accessed by Business Standard puts dues towards state utilities at Rs 1.5 trillion at the end of March 2021. 

Till the measures were announced, monthly accruals to overdue status were higher than the monthly payments towards dues. Chart 1 shows that rarely did payments cross new additions to dues till May 2020. But after that, payments have been higher than accruals, for most of the months. 

But that some measures are working, may not mean that the root of the problem is solved. 

While the trailing-12-month average of payments towards accumulated overdues has been rising, the payments towards current monthly dues has been declining. 

This means that the liquidity support is helping clear the outstanding pile of dues, but is not really making discoms capable of clearing their current dues by due date. 

Chart 2 shows how the payments towards current dues has been falling. Against an average of Rs 17,500 crore of monthly demand from these gencos the actual payments have been in the range of Rs 2000-3000 crore per month. 

Once the block of liquidity support gets exhausted, the monthly accruals will pile up to create a mountain of dues similar to how it was in the middle of 2020. 

An interesting fact that emerges from the PRAAPTI data is that the dichotomy between the largest government-owned power producing company and the largest private power generator. 

NTPC Limited, a central public sector undertaking and the biggest power producer in India, has the biggest share in the dues cleared between June 2020 and April 2021. 

But on the other hand, discoms dues towards Adani Power, the biggest private power producer, have not moved down an inch. 

At the end of May 2020, undisputed dues to Adani Power stood at Rs 19,463 crore, according to the portal. Come April 2021, they stand at Rs 18,608 crore. In fact, dues had declined to Rs 15,846 crore by February 2021, but they have jumped again in two months. (Total overdue amount including amount under disputes stands at a pedestal of Rs 39,190 crore as of April 2021)

Even if we consider that the liquidity support helped discoms clear their dues to Adani Power after June 2020, current dues seem to have piled up in March and April 2021, bloating the mountain of dues towards the sector leader. 

In case of NTPC, the dues they expect declined from Rs 18,839 crore in June 2020 to Rs 5,176 crore in April 2021. 

In case of payment default to NTPC, it can invoke tripartite agreement to ask the Centre to direct RBI to deduct the dues amount from the state government's accounts with the RBI. 

These tripartite agreements were signed between the state governments, central government through the ministry of power and the RBI. 

This agreement creates a pressure on the discoms (which are mostly state-owned) to clear the dues of NTPC, first. There have also been instances where NTPC has regulated power supply to discoms which default on the payment beyond the 60-days period. 

This step is rarely taken by private players, as it leads to regulatory troubles. Most private players are obliged to supply a certain amount of electricity, according to their respective power purchase agreements. 

But the larger problem of demand still remains. PRAAPTI data also shows that the monthly amount billed to discoms listed on the portal peaked in February 2020, and has not recovered to the peak yet, let alone crossing it (Chart 4). 

And the second wave has only exacerbated the demand problem. Poor demand will further hurt cash flows to discoms, who directly deal with consumers, who are turning insolvent due to the income impact of lockdowns. 

A larger impact on the power demand comes from the commercial and industrial (C&I) segment. With localised lockdowns and manufacturing hit by lack of demand from several sectors, power demand is a major sufferer. C&I segment is also the bulk payer to the discoms and their revenue driver. discoms also recover their cost of subsiding electricity to other segments by charging higher rates from these large consumers.

State-owned discoms are financially stretched with most of them back in red after last reform scheme UDAY concluded in FY20. At the operational front, improvement has been negated by increasing debt and dues. 

Icra Ratings in its latest commentary on the power sector noted, lockdown restrictions could impact the demand and collections for the power distribution segment, mainly from the high tariff-paying C&I customers. 

"Moreover, this could also delay the issuance of tariff orders and tariff revisions for the state distribution utilities, in the backdrop of large revenue loss and lack of tariff revisions in FY2021, as reflected from the median tariff hike of less than 1%. Icra’s outlook for the distribution segment remains Negative given the continued weakness in financial position of most state distribution utilities amid the operating inefficiencies and inadequate tariffs," said Girishkumar Kadam, Co-Group Head & Vice President - Corporate Ratings, Icra.