FINANCIAL CRUNCH - Discoms petition govt for bailout package
Navneet Sharma
CHANDIGARH:

IN DIRE STRAITS Power firms push for hike in tariff to cover cost DISTRIBUTION FIRMS r ARE FACING LIQUIDITY c CRUNCH AS BANKS ARE r RELUCTANT TO PROVIDE THEM LOANS WITHOUT STATE GUARANTEE t

dustantimes.com Loss-making power distribution companies Uttar Haryana Bijli Vitran Nigam (UHBVN) and Dakshin Haryana Bijli Vitran Nigam (DHBVN) have petitioned the Haryana Government for a bailout package and immediate revision in power tariffs to keep them afloat.
The two discoms, which are in dire straits due to accumulated losses, loans and other liabilities of around Rs 16,000 crore, pleaded for government intervention at a high-level meeting held under the chairmanship of financial commissioner and principal secretary, finance, Ajit Mohan Sharan, here on Tuesday.

In the meeting, the discom officials pushed for a hike in power tariffs to cover the cost of service, including the guaranteed return on equity, saying that the power rates had been hiked only once in the past 10 years.
However, they conveniently ignored fuel surcharge adjustments, along with the holding cost, allowed by the power regulator to recover the cost of power, which constitutes almost 85% of the cost of supply of the discoms to consumers.

Besides, the two utilities also proposed long-term bonds with the state government guarantee and timely release of rural electrification (RE) subsidy to ease the crisis. UHBVN and DHBVN have been taking working capital loans for day-to-day operations. Though the state authorities have declined to give “letter of comfort“ (state guarantee) in the past, the finance department gave an assurance to consider their request. However, the state guarantee for short-term borrowings has been ruled out, according to sources.

FCPS, Power, Madhusudan Prasad, Haryana Power Generation Corporation Limited managing director Sanjeev Kaushal, UHBVN MD AK Singh, DHBVN MD Mohammed Shayin and the chief minister's additional principal secretary KK Khandelwal were present in the meeting.

The two distribution companies are facing liquidity crunch, as banks are reluctant to provide them loans without the state guarantee. The banks, which have cut their exposure to the energy sector, are not keen to give further loans to UHBVN and DHBVN due to their limited debt-servicing capability.

As a result, the two utilities have run up dues worth about Rs 3,500 crore payable to HPGCL on power purchase from it. While the UHBVN has an outstanding debt of close to Rs 2,000 crore, DHBVN is only marginally better at Rs 1,500 crore.
HPGCL, which supplies power worth Rs 450 crore every month on an average to the two discoms, has consequently got in a tight spot and almost defaulted on its loan repayments recently.

Besides, lending agencies, including Power Finance Corporation and Rural Electrification Corporation, have downgraded its credit rating, which means costlier loans. “If the two distribution companies continue to default on payments, the generation company would find it difficult to pay for coal etc,“ a company official said.

UHBVN, which is facing a far more serious financial problem than DHBVN, has tripped on clearing the outstanding dues of NTPC on time. Last year, the Haryana Electricity Regulatory Commission (HERC) had warned the government about he impending financial crisis in he 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 roded, they are still able to carry on the distribution business because the banks and financial nstitutions 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 highisk lending. The impending criis in the distribution sector is obvious and requires long-term trategy,“ it warned at that time.

The regulator had suggested ecapitalisation of the two disoms by way of infusion of fresh equity, introduction of efficient evenue collection measures, a detailed diagnostic study and reduction in AT&C losses.
However, the government did not ake the HERC warnings as a wake-up call