Neck-deep in debt and mounting losses coupled with sharp reduction in power demand and revenue collection due to the coronavirus pandemic, the UP Power Corporation Limited (UPPCL) has sought a loan of Rs 20,940 crore from Power Finance Corporation (PFC) and Rural Electrification Corporation to pay its arrears to the PSU power generating companies (gencos).
Prime Minister Narendra Modi had announced a bailout package of Rs 20 lakh crore for different sectors of economy in May. In the package, Rs 90,000 crore was earmarked for the power sector under the Atmanirbhar scheme. Union Finance Minister Nirmala Sitharaman, a day later in her 15-point agenda to boost the economy battered by the pandemic, had announced the details of the Rs 20 lakh crore bailout packages.
Under the scheme, the Union government-owned power sector lenders PFC and REC will give equal loan amounts to states that commit to follow a reforms path indicated by lenders. The money is to be used for paying off dues of gencos. Under the scheme, the state government will have to submit guarantees against loans given to power distribution companies (discoms). Private power distribution companies (discoms), however, are not covered under the scheme.
Due to the cash crunch, the discoms are resorting to various measures of short-term financing, like bill discounting, to honour power purchase and transmission bills and avoid levy of late payment surcharge. The discoms across the country owed Rs 1.08 lakh crore to power generating companies (gencos) in April. The scheme seeks to address liquidity problems of both discoms and gencos.
The Atmanirbhar scheme is meant to tackle the liquidity crisis. The efforts by Centre in the form of two earlier bailout packages for the discoms to deal with the losses and debts have not met with much success. Under the last discom reforms scheme, Ujwal Discom Assurance Yojana, (UDAY) the national average aggregate technical and commercial (AT&C) loss was supposed to come down to 15 per cent by March 2019. It was, however, 22 per cent by then. The AT&C losses of UPPCL are over 17 per cent. The total debt of power distribution companies across the country stood at Rs 3.76 lakh crore on a negative net worth of Rs 80,600 crore at the end of March 2019.
Under the loan terms of the Atmanirbhar scheme, states are required to have prepaid smart metering in government electricity connections. Besides, states should have a liquidation plan for subsidy and electricity bills payable to discoms. A system for timely payment of subsidy and electricity bills in future is also required. Over the next three to four years, AT&C loss and average cost of supply and revenue have to be brought down. The AT&C loss or power supply loss due to inefficient system of discoms across the country is 20.8 per cent.
The power industry sources, however, said such liquidity infusion should be seen only as a temporary measure and not be considered a permanent solution for the revival of the struggling power distribution sector.
The sources said for the short and medium term, lending through the package would help in addressing the liquidity problem arising due to the COVID-19 pandemic and non-liquidation of regulatory assets.
The ultimate success to address the liquidity issue has to come from cost-reflective tariff, including liquidation of regulatory assets in a time-bound manner through regular tariff announcements with adequate increase. Regulatory assets are the accumulated loss of the discoms due to difference between the average cost of supply and average revenue realised. The UPPCL incurs a loss of 70 paisa per unit supplied.
