In a bid to resolve mounting non-performing assets [NPAs] of public sector banks [PSBs] in a time bound manner, on February 12, 2018, the Reserve Bank of India [RBI] had issued an order requiring banks to initiate resolution of stressed assets – the so called special mention account [SMA-2] wherein either the loan or interest is in default for 60-90 days. As per the above circular, as soon as there is a default in the borrower’s account with any lender, all lenders – singly or jointly – shall initiate steps to cure the default. The resolution plan [RP] may involve any actions/reorganization including, but not limited to, regularization of the account by payment of all over dues by the borrower entity,...
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Category: Power purchase agreements (PPAs)
Can UDAY herald a power boom?
The state electricity boards [SEBs]/power distribution companies [PDCs] occupy a pivotal position in the electricity landscape of India. Besides owning generation plants and transmission infrastructure/lines, they are engaged primarily in supply and distribution of power [own plus quantity purchased from independent power producers (IPPs)] providing last mile connectivity to homes, farmers, industrial units and business establishments etc. Maintaining SEBs/PDCs in a state of robust health is of paramount importance to ensure uninterrupted supply of quality power in requisite measure to the users, making timely payments to IPPs and suppliers of raw material such as coal [to keep their own generation stations running], ensuring proper upkeep and maintenance of the transmission/distribution infrastructure and timely servicing of loans taken from banks/financial institutions...
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Electrifying 40 million households – challenges ahead
In his address from the ramparts of the historic Red Fort on August 15, 2015, prime minister, N Modi had declared that his government will provide electricity to all the 18,000 villages [all located in inaccessible and the most difficult part of India] – that remained unconnected even 68 years after independence. Modi promised to complete this job within 1000 days. True to his commitment, the government accomplished the mission with the last of these villages in Leisang [Manipur] having got the electricity on April 28, 2018 nearly two weeks ahead of the target. A village is considered electrified if it has the basic electrical infrastructure and 10 percent of its households and public places including schools, local administrative offices...
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Power projects – flirtation with public money
In the midst of public sector banks [PSBs] losing lakhs of crore due to the so called non-performing assets [NPAs] – a sophisticated nomenclature for sheer loot of public money by dubious businessmen/industrialists acting in collusion with pliable politicians and bureaucrats – one comes across reports of the ‘government nudging bankers to take criminal action against independent power producers [IPPs] that have inflated project costs’. The diktat is a follow-up to the new power minister RK Singh last year hinting at the government’s intent to investigate ‘whether private developers gold-plated project costs’. He had suspicion that IPPs inflated project costs to raise a higher amount of debt to cover their equity component—a practice called ‘gold-plating’. This has far reaching ramifications. Let...
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Free power to farmers – a sham, nothing to glorify
The government of Telangana has decided to give 24×7 free power to all farmers in the state from January 1, 2018. A member of parliament [MP] from Telangana Rashtra Samithi [TRS] – the ruling party in the state – wanted the prime minister, Modi to recognize this singular achievement that has never been seen before in any other state. The union minister for railways and coal, Piyush Goyal even while respecting the decision of state government [in deference to the federal character of the constitution] nonetheless advised the latter to make adequate provision in its budget to subsidize the losses resulting from its decision to supply free power. What Goyal was alluding to requires elucidation. Assume that the power consumed...
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Electricity reforms – missing the wood for the trees
On the eve of a meeting with state power ministers to discuss comprehensive reforms in the power sector, in a free-wheeling interview with a leading business daily, union power minister, RK Singh has come up with four ideas viz. (i) cross-subsidy will be restricted to 20% from fiscal year 2019-20; (ii) tariff hike to cover losses of state electricity boards [SEBs]/power distribution companies [PDCs] will be capped at 15% from April 2019; (iii) innovative measures to reduce technical and commercial [T&C] loss of SEBs/PDCs and (iv) direct benefit transfer [DBT] of power subsidy. If, the multitude of problems facing the power sector including huge recurring losses of SEBs/PDCs could be solved by issuing diktats, this could have been achieved long ago. During...
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Power reforms – piecemeal measures won’t work
The union power minister, RK Singh has convened a meeting of state power ministers to discuss comprehensive reforms in the power sector to discuss among others measures (i) to uphold sanctity of power purchase agreements [PPAs] between generators and state electricity boards [SEBs]/power distribution companies [PDCs]; (ii) curbing wasteful electricity consumption; (iii) remove cross-subsidy surcharge and (iv) direct benefit transfer [DBT] of power subsidy. Before discussing the reforms at the outset, it is important to take cognizance of the problems facing the sector and the source of their origination. First, SEBs/PDCs, the life-line of power sector are incurring huge losses – a phenomenon seen for over two decades. Unable to make timely payments to power generators – public sector undertakings...
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Cheaper power to SEBs – let center not act spoiler
For India now progressively moving towards an energy use configuration that is environment friendly [increase in share of non-fossil fuel such as nuclear, solar, wind, hydro etc], a steep decline in the cost of power generation based on solar and wind to level even below Rs 3 per unit – enabled primarily by reduction in the cost of equipment and services – has come as a boon. The state electricity boards [SEBs]/power distribution companies [PDCs] are keen to be a part of this transition and would like to procure power at a lower rate so that this benefit can be passed on to consumers. Besides, this will also help them in reducing losses and make their operations financially sustainable so...
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DBT-Power – It’s a non-starter
Recently, during an interactive with a leading economic daily, union power secretary, Ajay Kumar Bhalla gave an indication of the government’s intent to launch direct benefit transfer [DBT] for giving power subsidy. Alluding to a clutch of pilot projects for DBT-Power to be launched soon, he exuded confidence that this will help in curbing wasteful electricity consumption, limiting power subsidies to really needy and denting losses of state electricity boards [SEBs]/power distribution companies [PDCs]. It will also help bring down current hefty tariffs charged from industrial customers. The move is prompted by DBT success for giving LPG subsidy and similar initiatives for fertilizers and foodgrains. Has the idea yielded desired outcomes in LPG? Has it really been kicked off in other...
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SEBs woes – generators can’t escape blame either
Recently, Yogi – government in Uttar Pradesh [UP] cancelled a number of power purchase agreements [PPAs] that were signed in the past by state electricity boards [SEBs]/power distribution companies [PDCs] with independent power producers [IPPs] under MOUs [memorandum of understanding] route. The reason given was that cost of purchasing power under these agreements was substantially higher [in some cases even double] than the average cost of purchase @ Rs 4 per unit. In view of surplus availability of power in the state, the government hopes to lower overall cost even while meeting all its requirements. In turn, this will help reduce losses of SEBs/PDCs in the state. The galloping loss of SEBs/PDCs [as on September, 2015, their accumulated loss stood...
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