Financial Daily from THE HINDU group of publications
Saturday, Feb 09, 2002
Industry & Economy
Defaulting States may get lower power allocation
BANGALORE, Feb. 8
IN a move intended to discipline the States defaulting in payments to Central Power Generating Utilities (CPGU), the Union Ministry of Power has proposed a scaling down of capacity allocations. This would imply capacities from CPGUs dedicated to the States being moved to a common pool for direct sale to deficit regions.
Official sources said that this proposal was in the incipient stage and would be taken up by the Union Cabinet for discussion as part of a comprehensive proposal for settling the dues to the Central public sector power utilities. The proposal involves a securitisation of about Rs 41,000 crore and conversion into long-term bonds as well as steps to prevent the build-up of overdues in future.
Currently, all the States in the country are allocated certain portion of the capacities from each of the stations of the National Thermal Power Corporation Ltd (NTPC), National Hydro Electric Power Corporation (NHPC) and Neyveli Lignite Corporation Ltd (NLC). CPGUs retain the unallocated capacity for sales on either discretionary or spot basis to any of the States.
However, such allocations have resulted in persistent defaults by beneficiary States, leading to severe cash flow problems to both NTPC and NHPC. Overdues to NTPC alone are in the region of about Rs 16,000 crore. Such large overdues position had led to cutting of supplies to some of the States.
Further, the sources said that cutting off supplies had not proved to be an effective solution as it only worsened the cash flow situation for CPGUs. This was because it led to idling of large capacities or substantial a reduction in the plant load factor (PLF).
This is a situation already being faced by NTPC plants in the eastern region, which are being forced to operate at low PLF. At the same time, the stations would have to make full payments for the contracted offtake to fuel suppliers.
The sources said that the proposal for reallocation of capacities was supported by the Central Electricity Regulatory Commission (CERC). The proposal would involve cancellation of capacity allocation to the defaulting States and allotting them to a common pool, especially through the Power Trading Corporation. Sales from this common pool would be made on an open access basis to any of the States either on a spot or long-term basis.
But among the crucial issues that require to be resolved before moving capacity into the common pool is pricing. The sources said the Ministry of Power was in favour of fixing tariff on power from the common pool only on a variable cost basis.
However, the public sector companies have taken the view that pricing should take into account both the fixed and variable costs for the residual period. Once this period is completed, tariffs could be fixed only for recovery of the variable costs.
CPGUs have taken this stand because there was no guarantee that the defaulting States would bear the burden of fixed costs in the event of capacity downscaling.
The sources also said that reallocations from these power stations would be done only on condition of watertight financial security packages. Such a security package would involve assigning Central transfers to the States to obviate any future cash flow difficulties to CPGUs.
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