Can't raise power tariff & reduce debt overnight: APP

In a bid to boost the stressed power sector and to restructure distribution companies' (discoms') debt of Rs 60,000 crore, the government is likely to come out with a concrete financial restructuring plan (FRP) mid-day today.CNBC-TV18 learns that that the headroom under the Fiscal Responsibility and Budget Management (FRBM) scheme will be put to use. The old loans will be converted into bonds, which could reduce interest costs by at least 3 to 5 percent and interest outgo will come down by as much as Rs 15,000 crore per annum.Speaking to CNBC-TV18, Ashok Khurana, Director-General, Association of Power Producers, says the power sector needs an immediate solution amidst the collapsing demand since past three years. On the steps to “de-stress the balance sheets of dicoms”, he says the state budget will have to be tweaked to create a headroom to purchase more power. This reform package, like the earlier ones, will have three components-- financial restructuring, loss reduction and tariff rationalisation, he adds. While restructuring is put to effect immediately, the other two components are always seen lagging, he says.Furthermore, Khurana adds that increase in power tariffs and reduction in debt of these distribution companies can not be achieved overnight.Backing Khurana, Pramod Deo, Former Chairperson at CERC, says while the state governments will have to bear the burden, the discoms will need to become financially liable and improve their performance, so as to avoid buying anymore electricity.However, the question remains is if these companies will be relieved only for a short-term or will they be provided an eternal respite.Below is the verbatim transcript of Ashok Khurana and Pramod Deo’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: What do you think could be the likely outcome of the meeting that the government has later today and what is the best solution for the power sector now?Khurana: We have seen the demand collapsing in last three years. In fact, the plant load factor (PLF) today is running in the range of 58-59 percent thereby leaving the capacity stranded. It is basically because of the inability of the distribution companies to buy more power and service their obligation to customers. The financial restructuring or the reform package that the government is planning, we do not have the full details but we have what the newspapers are reporting. Now, this will immediately create headroom in the distribution balance sheets to purchase more power to meet their liability obligation. Like they have not paid many customers, they had not paid Coal India to meet their obligations and give at least immediate breather to power sector and tie-up new power to meet their obligation. However, I must add to it that earlier too reform passages also had a variant of this. Now, each reform package has three components, first is of course the financial restructuring, second is the loss reduction and along with that the tariff rationalisation. We have seen in the past, the first one takes up immediately but the other two, drag-on. Latha: Piyush Goyal made it very clear that there is no financial intervention from the center; it is only going to be hand-holding. We do not know as yet how the central government is going to help other than just relaxing the Fiscal Responsibility and Budget Management (FRBM) limits? However, we had Vasundhara Raje on record speaking to Shereen Bhan saying that merely relaxing the FRBM limits may not be enough. What is your sense of the solution itself? Are they just going to ask the state governments to take over the loans of discoms, will the state governments listen if this is the only thing that is coming?Deo: The important thing is for the discoms, they have to be financially viable. They can’t be carrying all the losses. They have to function like any commercial entity so that is why the proposal as it is appearing in the newspapers and it has been under discussion for quite some time, is that the state government takes this burden and state government will have to restructure their own financing in such a way that they can handle it. However, the important thing is now the discoms have to perform and performance will depend upon various factors. It is not only that they contract new capacity which is necessary to fulfill their obligation to all the consumer otherwise the tendency today is to keep the tariff low, just don’t buy enough electricity because if you buy more electricity, you have to pay for that and then that reflects in the tariff. The other point which is about the efficiency improvement, that comes through reducing losses. That is quite a challenging thing because we have to remember all these discoms are strictly government companies. They are controlled by government so they have a work culture which is not very conducive to that. So, they are highly politicised. So, that also is really a challenge.