From no PPAs to NPAs

As regulators fiddle, power crisis sharply worsens

t a time when most states are reluctant to sign new PPAs (power purchase agreements), since the electricity is either too expensive for them to procure or they have enough for the present, even a tender for a modest 2,400 MW—from the Andhra Pradesh gover nment—can come as a relief to power producers. The Uttar Pradesh government too is understood to be looking to purchase close to 4,000 MW, though that could take a few months, but there’s virtually no visibility beyond that. While close to 30,000 MW of capacity has come on stream in the last three years, PPAs have been signed for just over a fourth of this. Indeed, the question is at what prices the new set of PPAs will be negotiated and to what extent producers will try and undercut each other to win themselves a deal. It’s possible that sellers will be satisfied even if make enough to cover their fixed costs and service their debt; that way at least the assets will nor remain idle.

As is well known, it’s not really a lack of demand that’s keeping the states from buying power, it’s the perilous financial state of the discoms which forces them to back down. Discoms are losing money even in more prosperous states such as Maharashtra. Given how stressed their finances are—aggregate losses of utilities (without accounting for subsidy) were estimated at over R1 lakh crore for 2014-15 and have almost certainly risen since—they clearly not going to be able to afford too much power in the coming years. Despite the government helping them out with a Financial Restructuring Plan (FRP), that allowed them to convert half their short-term loans into bonds with the remaining half being restructured by banks, the finances of many of the SEBs remain in a shambles. That’s primarily because most states have not raised tariffs as they should have. A tally in March by rating agency ICRA showed barely 15 out of 29 states had made the mandatory tariff filings whereas this should have been completed in November. Even among those that filed, some of them proposed hikes in tariff proposed were grossly inadequate; Andhra Pradesh, Gujarat, Maharashtra and Telangana proposed modest tariff revisions in the range of 3% to 8%. With the Rajasthan State Electricity Board reportedly asking for a second round of restructuring, the situation is dire.