Haunted by 'Discoms' Woes

Financially weakened power distribution companies (discoms) have become a curse for electricity generators. Erratic coal supplies have further added to generators’ woes.

 

The two systemic issues have come to the fore as a number of power plants stare at the prospect of being taken to the National Company Law Tribunal (NCLT) for missing on payments to lenders.

 

Struggling with poor finances, discoms often delay payment for electricity purchased from generators, which disrupts the latter’s cash flows.

 

Meanwhile, coal supplies to power plants have also deteriorated, forcing generators to reduce capacity utilisation, which adversely affects cost economics of power plants and hampers developers’ ability to repay loans.

 

The Reserve Bank of India’s new framework on identification and settlement of bad loans, which makes it mandatory for lenders to take defaulting borrowers to the NCLT after expiry of the 180-day deadline, has made things worse for power plants.

 

Generators have challenged the RBI’s new circular in the Allahabad high court, saying it is unfair to them as their debt servicing capability is linked to timely payment from discoms and availability of coal from Coal India. Both the sectors are being heavily regulated by the central and state governments.

 

Banks have taken large haircuts for the settlement of non-performing loan accounts that have gone to the NCLT. So, they are not very keen on dragging other borrowers to the bankruptcy courts. However, they cannot bypass the RBI circular.

 

But we cannot blame the RBI for the current state of affairs. It has just hastened the inevitable.

 

The viability of the power sector is being dented by discoms’ financial profligacy. Unless discoms are insulated against interference by political masters in their commercial decision-making, there is little chance of the sector turning around.