Resource Digest - - POWER -

The highly in­debted and loss-making Ut­tar Pradesh Power Cor­po­ra­tion has writ­ten to the min­istry of power re­quest­ing fresh loans of Rs 5,000 crore for the cur­rent fis­cal and a sim­i­lar amount for FY17.

“Since banks are not pro­vid­ing any funds to dis­coms, cash man­age­ment has be­come a big prob­lem,” chair­man of UPPCL San­jay Agar­wal has writ­ten, also out­lin­ing a vi­a­bil­ity plan for the cor­po­ra­tion.

The let­ter says UP dis­coms are sad­dled with loans of about Rs 41,000 crore, in­clud­ing Rs 15,840 crore of the bal­ance of loans out­stand­ing as on March 31, 2012. “The in­ter­est pay­out on th­ese loans is about Rs 5,500 crore. This means that out of the op­er­a­tional loss, al­most 50% is con­trib­uted by the in­ter­est alone. This has in­creased the COS by about 60 paisa per unit,” the let­ter notes.

The UP gov­ern­ment has said that since the dis­coms are still in losses, pay­ing in­ter­est and prin­ci­pal has be­come dif­fi­cult. How­ever, the mora­to­rium for loans out­stand­ing on March 31, 2012, and also the loans taken in 2012-13 is over and the re­pay­ment of prin­ci­pal has started. With banks re­cov­er­ing their in­ter­est and prin­ci­pal re­pay­ment from the es­crow ac­count, dis­coms are left with lit­tle cash to pay for power pur­chase and meet their other ex­penses, the let­ter notes.

As per the ear­lier FRP, af­ter FY15, the en­tire op­er­a­tional loss of dis­coms is to be funded by the state , but the state gov­ern­ment’s fi­nances are al­ready un­der stress due to tak­ing over of past short-term li­a­bil­i­ties and also the fund­ing of op­er­a­tional losses in the last three years.

The let­ter goes on to add that in UP there are about 65 lakh ru­ral con­sumers, who are mostly un­metered. “It is dif­fi­cult to con­trol AT&C losses in ru­ral area in the ab­sence of me­ters. Ru­ral me­ter­ing has been started but it would take at least two years to cover the en­tire state. The state gov­ern­ment is pro­vid­ing sub­sidy for ru­ral sup­ply at re­duced rates but in the ab­sence of ac­cu­rate data of consumption in ru­ral ar­eas, the sub­sidy is based on es­ti­mates and does not cover the ac­tual loss to dis­coms,” it says, adding that while the dis­coms have been reg­u­larly fil­ing tar­iff pe­ti­tions and ARR since FY13 and have been ask­ing for in­crease in tar­iff to bridge the gap be­tween COS and ARR, the UPERC, un­for­tu­nately, has not al­lowed ad­e­quate tar­iff in­crease in the last two years.

“Since the tar­iff or­ders were also is­sued quite late, the ef­fec­tive in­crease for the year be­came neg­li­gi­ble. The true ups were filed up to 2012-13 and reg­u­la­tory as­sets of about Rs 18,000 crore were ac­cepted but the reg­u­la­tory sur­charge al­lowed is so low that the reg­u­la­tory as­sets would be re­cov­ered over a pe­riod of 15-18 years,” it adds.

Giv­ing spe­cific pro­pos­als to help rec­tify the sit­u­a­tion, the let­ter says that liq­ui­da­tion of loan li­a­bil­i­ties is the ma­jor ne­ces­sity.

Apart from this, the let­ter un­der­lines is­sues such as ad­mis­si­bil­ity of in­cen­tive on re­duc­tion of AT&C losses, in­ter­est sub­sidy on loans taken for meet­ing op­er­a­tional losses, reg­u­la­tory is­sues, etc., and in the end seeks im­me­di­ate fi­nan­cial help. Con­firm­ing that a let­ter has been dis­patched to the Cen­tre, a se­nior of­fi­cial of UPPCL told FE that while the Cen­tre formulated the FRP in Oc­to­ber 2012, it be­came op­er­a­tional in July 2013 and the pe­riod of FRP ended in March 2015. “So the dis­coms vir­tu­ally got less than two years’ time to elim­i­nate losses,” he said.

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