Cash strapped discoms hit power generation company
Navneet Sharma
CHANDIGARH

IN CRISIS Banks refuse to give loans, dues for purchase, transmission increased to R3,100 crore

: Poor financial health of the state-owned power distribution companies--Uttar Haryana Bijli Vitran Nigam (UHBVN) and Dakshin Haryana Bijli Vitran Nigam (DHBVN)-appears to have started hurting the power generation company in the state.
The two distribution companies, which are facing liquidity crunch on banks' reluctance to provide them loans, have run up dues worth about Rs 3,100 crore payable to Haryana Power Generation Corporation Limited (HPGCL) and Haryana Vidyut Prasaran Nigam (HVPN) for purchase and transmission of power, respectively.

Of this, the two discoms owe a staggering about Rs 2,750 crore to HPGCL alone as per the latest figures. While UHBVN has an outstanding of Rs 1,601 crore, DHBVN is only marginally better at Rs 1,149 crore. The result: HPGCL, which supplies power worth Rs 425 crore every month to the two discoms, is in a tight spot and nearly defaulted on its loan repayments.

Besides, lending agencies including Power Finance Corporation and Rural Electrification Corporation are learnt to have downgraded its credit rating, which means costlier loans. Additionally, an amount of Rs 375 crore is payable by the two distribution companies to the transmission company, HVPN.

Though UHBVN and DHBVN have been in dire straits for a long time due to their accumulating losses, the banks, which have cut their exposure to the energy sector, are not keen to give further loans to them due to their limited debt servicing capability.

“There is a credit squeeze after the RBI issued guidelines to banks regarding some power companies in some states.
However, it is a temporary situation. We are holding negotiations with some banks and hope to work out things in the next 15 days. Payment of a substantial amount will be made to the generation and transmission companies in all likelihood,“ UHBVN managing director Arun Kumar said.

Mohammed Shayin, managing director of the DHBVN, also echoed similar views.

When contacted, HPGCL managing director Sanjeev Kaushal said that the state government was aware of the problems being faced by the company in this regard. “The discoms have been asked by the government to work out modalities for clearing the outstanding dues,“ he said. While the discoms, especially UHBVN, have been irregular in payments in the last few months, the generation company has had to depend mainly on rural electrification (RE) subsidy from the government.

The discoms are attracting surcharge at the rate of 1.25% per month for the delay in payment. As per their agreement with the HPGCL, the two companies get a rebate of up to 2% when they make payments on time. They have to pay the surcharge wherever the payment is not made within a period of two months. In the first quarter (April-June) of the current financial year, the surcharge on delay in payments has been calculated at Rs 45 crore. The discoms are, however, making payments to central power sector undertakings such as NTPC, NHPC and NPC.

The UHBVN and the DHBVN, which were created in 1999 after unbundling of the erstwhile Haryana State Electricity Board, have accumulated losses of more than Rs 6,100 crore. Their total net borrowings (secured and unsecured loans) have risen to Rs 16,000 crore with UHBVN account for Rs 9,000 crore. Though there has been some improvement in recovery of bills lately, the cash losses of the two companies, which reflect their ability to manage day-to-day business, present a grim picture. Government ignored warning signals The signals were there, but the state authorities did not respond.
The Haryana Electricity Regulatory Commission (HERC) had warned the government about the impending financial crisis in the power sector due to poor fiscal planning and efficiency levels in the two discoms.
“Despite the fact that the entire net worth of these companies is eroded, they are still able to carry on the distribution business because the banks and financial institutions continue to fund them. “At some point of time, the banks and institutions in order to safeguard their own financial health may lose appetite for such high risk lending. “The impending crisis in the distribution sector is obvious and requires long term strategy,“ HERC chairman Bhaskar Chatterjee wrote to financial commissioner and principal secretary, power, Madhusudan Prasad six months ago. The commission had suggested recapitalisation of discoms by way of infusion of fresh equity, introduction of efficient revenue collection measures, a detailed diagnostic study and reduction in AT&C losses.
“If the high losses are allowed to continue, the two companies will get financially crippled under the burden of accumulated losses and growing liability on account of debt servicing and repayments,“ it pointed out. While the state authorities needed to take the HERC warnings as a wake-up call, they have done little to improve the situation. Efforts were made to contact Madhusudan Prasad, but he was not available.