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Lower coal prices could help loss-making state electricity boards

The Financial Express
coal, coal import, coal export

Virtually every village in the country today is electrified but the irony of the situation is there isn t enough affordable power to go round. The amount of power consumed in 2018-19 is estimated at just roughly 4% more than that in 2017-18. Plagued by losses, the distribution companies (discoms) are unable to procure enough power even as a clutch of private sector generating companies (gencos), that are unregulated, struggle to stay afloat in the absence of adequate coal or gas. A good many have become stressed assets for their lenders; the Samadhan scheme has had very limited success in finding buyers for these. The supply of coal to power plants by Coal India, in the eleven months to February, was about 9.4% higher than in the corresponding period of 2017-18 but that was still lower than the allotted quantity. The quantity of gas made available was barely 29-31% of the allocation promised.

The root of the problem remains the discoms that, over the years, have run up large losses. While their operational and financial data is not available beyond 2015-16, their dues to gencos are believed to have increased sharply over the last few months. On average, according to Kotak Institutional Equities, their payables to generators are overdue by about four months. State Electricity Boards are tipped to make losses of over `1 lakh crore in 2018-19 and also in 2019-20.

While the UDAY scheme could have made things better, it hasn t helped as much as hoped. The key to a more robust performance was lower AT&C losses but these are now at close to 20% as compared to the targeted 15%; in some states, the level is closer to 25%. Also, the progress of smart metering of lines aimed at improving efficiencies has been tardy and at 5.34 lakh, it is still less than 2.2% of the targeted 24.1 million metres.

Discoms are unlikely to fall in line unless their borrowing limits are curbed. Also, as Kotak suggests, the government might want to re-look the economics of the power sector by reining in the profits of Coal India, and limiting its dividend payouts, for a temporary period. Cheaper coal could improve the finances of gencos and, in turn, those of the discoms. To be sure, the Centre has little incentive to do this because it uses the dividends from Coal India to boost non-tax revenues. However, there is a case for foregoing these receipts to make the power sector a little more solvent; some relief to power producers would help the state-owned banks. Already, state-owned gencos such as NTPC have been pampered by the government which has partisan pricing policies; NTPC, too, should participate in the competitive bidding process.