Shishir Asthana Moneycontrol Research
It is no mean task that every village in India now has access to electricity. Every home is yet to be electrified, but most of the work is done. Providing connection to the last few villages was quite a task given geographical issues. Now that electricity is available at the village level, last mile connectivity will be easier. There are enough data points highlighting the economic benefits from electricity.
While providing electricity would increase the demand for power, the government is still struggling to get the demand-supply side equation right. Despite various restructuring schemes and incentives, state electricity boards (SEBs) are still in poor health. For every unit of power purchased, transmission and distribution losses are above the accepted levels. That forces SEBs to buy less power to keep their losses in check.
As a result, cities, towns, and villages are witnessing power cuts despite electric connections. Ironically many power plants are running at below optimum capacity. Plant load factor of public sector units stood at 78.47 percent in March 2018 but that of private sector players fell to 52.29 percent the same month.
The culprit in the entire power sector mess is the connecting link – the SEBs. Unless they are strengthened, efforts to provide electricity to villages and homes will be meaningless.
As will be efforts to revive idling power plants sitting as non-performing assets on the bank’s books.
Recent reports say State Bank of India (SBI) is taking the initiative of reviving the power plants. Nearly Rs 1.77 lakh crore is stuck in power plants with a potential of generating 75,000 MW. SBI is working with various government agencies and banks on a major debt restructuring and takeover plan for stressed power assets.
While the intentions are good and may even revive the power plants, the question remains where will the power plants sell the electricity generated. Though the bank is insisting on power purchase agreements (PPA) with SEBs the financial strength of these SEBs will prevent them to participate in these PPAs.
In the case of renewable energy PPAs, many SEBs refused to honor the contract as power tariff started to decline.
Rising NPAs has resulted in various government agencies, including RBI trying to address the issue from their own perspective.
A recent RBI framework mentioned that the resolution of the power plants should be done in 180 days. This is a textbook case of passing on diktats without understanding the ground reality. Given the ground reality, will any company be interested in buying these units if there are no buyers for the final product (electricity).
The Ujwal Discom Assurance Yojana (UDAY), the scheme that the government announced to strengthen the SEBs has failed to deliver. According to a Financial Express report, state governments are now under stress as they have to account for the UDAY bonds in their budget since the two-year moratorium has expired.
Apart from the interest on the UDAY bonds, state governments will also have to take the losses of the SEBs in its books. Because of this, the report says, Bihar’s state fiscal deficit is likely to end up at 7.5 percent of state GDP from the planned 2.87 percent for FY18. The targets set by all states while signing for the UDAY guidelines is nowhere close to the actual numbers.
Take the case of Bihar where the state was expected to reach an aggregate technical and commercial losses (ATC) of 36.42 percent by FY17 but has only managed 41.75 percent. Most of the states are behind the targets set by UDAY on one parameter or the other.
Thus even if an electricity cable reaches the villages and power plants are revived, the agency (SEBs) responsible for distribution of this power is not in a condition to purchase and distribute. The villagers will continue to live in darkness and the banks will be sitting on the NPAs unless a comprehensive solution is found. Unfortunately, it is the state governments which hold the key of reviving the SEBs. Given that this is an election year no state government would like to bite the bullet.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
