Editorial: Power shock

On the face of things, finances are improving in the power sector. The Power Finance Corporation’s (PFC) latest report shows a definite slowing in the trajectory of losses of all power utilities. From R75,000 crore in FY11, losses rose a third to R102,000 crore in FY12 and then flattened to R105,000 crore in FY13. The Planning Commission’s estimates for FY14, though a different data set from the PFC one, in fact, shows a reduction of losses. The right question to ask, under the circumstances, is whether the data is believable. There are clearly problems with the data, in that the numbers depend upon what has been recognised by the utility. In the case of Delhi, where accounting standards are far superior since the electricity distribution companies (discoms) have been in private hands since 2002, the unaccounted amounts add up to around R25,000 crore—while R13,500 crore of ‘regulatory assets’ have been recognised by the regulator till FY13, the discoms claim another R13,000 crore or so is owed to them. A recent study by credit-rating firm ICRA found, similarly, an uncovered gap of R11,900 crore in Uttar Pradesh. Also, demand has collapsed with GDP slowing and, more important, with state utilities facing a huge cash crunch, several of them are simply preferring to back down their power plants instead of incurring losses running them. Indeed, news reports suggest that states are increasingly buying in the spot markets instead of signing up long-term PPAs, putting at risk around 25,000MW of power plants which are in the process of being constructed. Add to this the power plants that are locked in dispute over tariffs—the Adani and Tata power cases of compensatory tariff are stuck in the Supreme Court—and those that are running at low plant load factors (PLFs) due to unavailability of fuel supplies.

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