Disputed decline in power dues

In a significant trend change, power generating companies in India saw a decline in overdues at the end of March 2021. The amount of money that remained outstanding after 45-to-60 days of grace period given to the distribution companies fell to about Rs 67,300 crore, over 20 per cent lower than what it was a month ago. The data covered only the operations of power generating units owned or controlled by the Centre and privately-owned independent power producers, accounting for almost three-fourths of the country’s total power generation.

In March 2020, their overdues were estimated at Rs 68,525 crore and had seen only a 4 per cent fall over the outstanding amount of February 2020. Even in March 2019, the drop was just about 10 per cent over the previous month. Clearly, it was not a year-end clearance of overdues and something else had happened in the last couple of months of 2020-21 that led to a sharp drop in the March 2021 dues of power generation companies.

One explanation for the sharp improvement in the outstanding situation could be the special liquidity package announced by the government for stressed power distribution companies or discoms. In May 2020, Finance Minister Nirmala Sitharaman had announced a plan to infuse Rs 90,000 crore into these cash-strapped discoms. This amount was later raised to Rs 1.2 trillion.

By November 2020, loans worth Rs 1.18 trillion under this scheme were sanctioned by the state-controlled Power Finance Corporation and REC Ltd and the amount actually disbursed was over Rs 31,100 crore. No data for the actual disbursement of such loans till March 2021 is available. Nevertheless, it is reasonable to conclude that such funds have helped discoms bring down their overdues.

However, the manner in which the overdues have come down reveals a few worrying trends.

One, even as overdues have come down, there has been a disconcerting rise in dues that have been disputed by the discoms. In March 2020, the total amount of disputed dues was Rs 10,194 core, which was about 15 per cent of the total overdues (excluding the disputed amount). A year later, in March 2021, the share of disputed dues (Rs 22,565 crore) in total overdues rose to over 33 per cent. In other words, even as overdues (excluding disputed dues) came down, the value of disputed dues more than doubled. This also meant that total overdues (including disputed dues) of power generation companies had actually increased at the end of March 2021, not declined, compared to March 2020. So, are the celebrations over a reduction in overdues a little premature?

A more serious question is: Why did the disputes increase? Have the disputes risen because of the Covid-19 situation in the country? Or has something more serious afflicted the discoms that has forced them to dispute more of their transactions with power generation companies?  Or has there been a delay on the part of the state power regulators in settling these disputes? Whatever be the reason, the increase in disputes is alarming and can undo whatever gains the reduction in overdues may achieve for the health of the power sector.

The second worrying trend is that the improvement seen in the outstanding situation of power generation companies has not been uniform across the sector. Almost 47 per cent of the country’s power generation is now accounted for by independent power producers or IPPs, which are in the private sector. Central public sector enterprises or CPSEs account for 25 per cent and the remaining power is generated by state-sector power companies.

But there is a sharp difference in the pace at which the overdues of CPSEs and those of IPPs have been cleared. The overdues of CPSEs have declined from about Rs 30,000 crore at the end of March 2020 to Rs 20,800 crore at the end of March 2021 — a decline of over 30 per cent. Interestingly, their overdues kept mounting from March 2020 onwards and reached a high of Rs 44,200 crore by the end of September 2020. In the following months, the decline was rapid, thanks largely to the power ministry’s package for stressed discoms.

In sharp contrast, the overdues of IPPs kept mounting during this period. What worked brilliantly for the CPSEs seemed to make no impact on the IPPs. The overdues of IPPs rose from Rs 30,960 crore at the end of March 2020 to Rs 33,980 crore at the end of September 2020 and to Rs 34,830 crore at the end of December 2020. At the end of March 2021, they further went up to Rs 35,250 crore.

In dispute resolution also, the IPPs appeared to be at the receiving end. The total amount of disputed dues for IPPs rose from Rs 9,000 crore at the end of March 2020 to Rs 21,100 crore at the end of March 2021. But the disputed dues for CPSEs saw no such sharp spike as they rose marginally from Rs 1,300 crore to  Rs 1,500 crore in the same period. For instance, NTPC, the largest CPSE power generator, had overdues of only Rs 5,000 crore, with no disputed amount, at the end of March 2021, while Adani Power, the largest IPP, had overdues of Rs 18,400 crore and disputed dues of over Rs 20,500 crore in the same period. Interestingly, disputed dues for IPPs other than Adani Power is insignificant.

Such a scenario has serious implications for the state of India’s power sector. It would appear that the privately-owned power generation companies have not got as much benefit from the government package for stressed discoms as the CPSE in the business of power generation. Even on the question of disputes, IPPs have seen a sharper increase in disputed dues than the CPSEs. And this at a time when the share of IPPs in the country’s total power generation is on the rise.

The country’s power regulators and the government should quickly examine this disturbing trend. Corrective steps should be taken immediately, if there are flaws in the execution of the liquidity infusion scheme or if there is a bias against the IPPs in the manner in which the overdues are being cleared or disputes are being resolved. Or are the higher overdues for IPPs a legacy issue as many of them grew inorganically by acquiring  companies, possibly with significant amounts of past dues and disputes? Allowing such a situation to get worse can only turn the private sector more apprehensive about making the much-needed fresh investments in the power sector. Worse, this will increase pressure on the already-stressed government finances to meet the eventual investment gap.