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It’s not a power crisis or a coal crisis. It’s a payment crisis!

The resolution of payment issues among various stakeholders in India’s power sector may hold the key to meeting electricity demand amid rising temperatures, economic growth and critically low coal stocks.

May 02, 2022 / 12:55 PM IST
Representative image.

Representative image.

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By definition, selling is giving something in exchange for money. This transaction must also take place within a reasonable timeframe for a business to survive.

However, India’s power sector has a different story to tell. Across the chain, entities are selling without getting the money on time. And that shows in the level of outstanding dues.

State-run Coal India is owed about Rs 12,300 crore by power generation companies and yet the biggest supplier of coal in the country continues to sell coal to its customers.

Power generators, in turn, are owed over Rs 1.1 lakh crore by power distribution companies (discoms) and yet they continue to sell electricity to them.

Discoms have accumulated losses of over Rs 5 lakh crore and regulatory assets, which represent costs that are deferred for recovery through future tariff revisions, worth Rs 1.25 lakh crore. Yet, they continue to supply electricity to consumers, with occasional power cuts. The discoms struggle to get tariff increases and “free power” continues to be a political tool.

the power shock social media card

Amid all this, India’s power demand touched an all-time high of over 201 gigawatts (GW) on April 26 as the summer started early this year. The government expects demand to reach 215-220 GW in May-June.

Demand growth

“The rising power demand reflects the economic growth in the country,” the power ministry said in a statement on April 26.

In March, energy demand grew as much as 8.9 percent, driven by a pick-up in industrial activity and high demand from farmers and households amid rising temperatures.

Also Read | A fourth of India’s power generation capacity shut, mainly due to lack of fuel

“The government and other stakeholders are working together to ensure unhindered power supply and efforts at all fronts are being made and measures are being taken for better utilisation of various resources,” the power ministry said.

But the payment delays across the value chain weigh on the power sector. Even as the stakeholders blame each other for the shortages that have forced states to undertake power cuts, they are unanimous that the payment mechanism needs to be fixed urgently.

It’s not a power crisis. It’s not a coal crisis. It’s a payment crisis.

It’s not a power crisis or a coal crisis. It’s a payment crisis! R

According to industry officials, the non-payment of dues by discoms has affected power generation companies, which have defaulted on payments for no fault of theirs and are dragged to insolvency court.

Also Read | Depleting coal inventory prompts warnings of energy crisis across 12 states

“It is a government entity not paying the generators, which is resulting in another government entity, the banks, taking the same generator to insolvency,” said Harry Dhaul, director-general of the Independent Power Producers Association of India.

Supply amid cash crunch

According to Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators, a government portal better known as PRAAPTI, dues to generation companies by discoms stood at Rs 1.1 lakh crore. This has hurt cashflows and their ability to pay for coal.

While Coal India’s dues from the power sector have come down to about Rs 12,300 crore from Rs 21,600 crore at the beginning of FY22, it still remains high, company officials told Moneycontrol.

“We have been supplying to independent power producers on a cash-and-carry basis but we have not regulated supplies to central and state generation companies on account of outstanding dues,” a senior Coal India official said.

Coal stocks at power stations are depleted and many units have reported critically low average stock. According to the Central Electricity Authority, 86 of the 150 domestic coal-fueled units had critically low average stock as of April 25, which means they had less than 25 percent of their normal requirements. The key reasons listed were low supply from Coal India and its subsidiaries and lack of wagons available with the railways to carry coal from pitheads to power plants.

It’s a payment crisis

Many plants were being offered coal on payment. According to reports, Coal India increased supplies to Maharashtra, which owes the company Rs 2,000 crore, by about 30 percent.

While Coal India officials denied that the company was moderating supplies to certain power plants due to non-payment or delays in payment, data from Coal India revealed that certain plants were not considered in the “critical/super critical category” due to non-payment of dues. A detailed query sent to Coal India remained unanswered.

“There has been a moderation in coal supply towards certain gencos because of the overdues or delays in the payments. As a result, discoms/state governments will either have to absorb the cost burden with increased imported coal-based generation and pass on the same through tariff hikes or they could be constrained to offtake power, resulting in load shedding, which has been visible in a few states recently,” said Girishkumar Kadam, senior vice president and co-group head - corporate rating, at ICRA.

Kadam said improving cashflow positions for state discoms remains critical and will be dependent on the ability to ensure healthy cash collections from consumers, timely and adequate release of subsidy by the respective states, and focusing on reducing distribution losses and cost overheads, in line with regulatory targets.

India is yet to see power demand peak this year and the resolution of payment issues will need systemic changes that may take time. Until then, power generation companies, discoms and Coal India will have to continue selling their output for “unhindered power.”

Rachita Prasad
Rachita Prasad heads Moneycontrol’s coverage of conventional and new energy, and infrastructure sectors. Rachita is passionate about energy transition and the global efforts against climate change, with special focus on India. Before joining Moneycontrol, she was an Assistant Editor at The Economic Times, where she wrote for the paper for over a decade and was a host on their podcast. Contact:
first published: Apr 27, 2022 03:07 pm