A weak economy, delayed payments from state-owned power distribution companies, lending bottlenecks and climate change-induced natural calamities are rattling stakeholders across the board in the power sector.

A recent report by SBI has highlighted the fact that electricity demand in India contracted to an eight-year low in September. This contraction in demand has had an impact on all the three stakeholders – the power producer, power distributor and the lender (in this case banks).

JSW Energy, a part of the $14-billion Sajjan Jindal-backed JSW Group, in Q2 of this financial year, said that India’s power demand growth had declined to 1.6 per cent from 6.8 per cent, when compared on a yearly basis. Prashant Jain, Joint MD and CEO, JSW Energy, attributed this to heavy rains and floods in West and South India.

The Plant Load Factor (PLF) in the thermal segment had edged down to 52.5 per cent in Q2FY20, as against 57.6 per cent in the corresponding quarter of the last fiscal. PLF is used to determine a plant’s power producing capacity.

Also, renewable and thermal generation declined by 9.2 per cent and 2.5 per cent, respectively. Hydro energy, however, grew by 9.1 per cent on a YoY basis.

Dues of discoms double

On the other hand, power distribution companies (discoms) such as Tata Power, too, faced the heat. While its profits dipped due to a one-time tax impact, revenues from power generation were down marginally at Rs 542 crore, when compared to Rs 578 in the year-ago period. Looking at the overall picture, the outstanding dues of discoms has gone up from Rs 35,500 crore to Rs 74,700 crore, according to a recent Kotak report.

Power producers give the Discoms 60 days’ time to pay their bills, after which the outstanding becomes overdue, and generators charge interest. All this is part of a larger malaise involving 34 thermal power projects, which represents 40 GW of capacity, in the process of turning bad, thereby, exposing Rs 1.74 lakh crore in bank loans.

States such as Tamil Nadu and Andhra Pradesh are amongst the defaulters. According to government data, Tamil Nadu Generation and Distribution Corporation (Tangedco) has overdue payments of Rs 9,807 crore. The Association of Power Producers (APP) a few weeks back had written to the Power Ministry to address this issue urgently, but sources said nothing has come of it as yet.

“A new payment security mechanism, extending a special loan from the PFC to states like Tamil Nadu (with a rider that the loan amount is to be used for making payments to generators), and re-looking fuel linkages are the need of the hour,” said Ashok Kumar Khurana, Director-General at APP.

For example, Andhra Pradesh's average payable days to the renewable generators rose to more than 200 by the fiscal year-end 2019, from around 100 in 2018, according to a Fitch Ratings analysis. Telangana’s record worsened to more than 280 payable days by the fiscal year-end 2019, from under 190 at 2018.

All these issues, which have been hovering around in the horizon, now seem to have come home to roost. “Power is a politically sensitive subject and discoms don’t have the flexibility to raise tariffs, as it would be politically incorrect to do so, which all adds up,” said a power sector analyst. The financial position of some state-owned discoms in other states has also deteriorated significantly in the last few years, with the cost-revenue gap widening, in addition to lesser or delayed subsidies from the state authorities, noted Fitch.

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