india

Updated: Apr 21, 2020 15:22 IST

The government is working out a Rs 70,000 crore financial package for the power sector that is battling to stay afloat amid plunging cash inflows, sharp drop in bill collections and unchanged tariffs that are bleeding their balance sheets.

Power tariff collections, the primary revenue source for distribution companies (Discoms) that carry electricity to homes, factories and the corporate towers, have fallen by nearly 80 percent in the last monthly cycle, top government officials told Hindustan Times.

The nationwide lockdown has put a hard stop across India’s broader economy as factories have remained shut, construction activity suspended, and restaurants and shops, other than those selling essentials, closed since March 24.

Despite a fast approaching summer with temperatures pushing 40 degree centigrade in many areas across the north-western plains, peak power demand has fallen sharply as economic activity remains restricted to contain the spread of the Covid-19 pandemic.

Current power consumption has dropped to 125 gigawatts as compared to 165-168 gigawatts in April 2019, triggering a dramatic collapse in discoms’ bill collections.

Most discoms, officials said, have reported revenue collections that are equivalent to about one-fifth of their average collections last year, mirroring the fiscal brittleness of India’s power sector.

From about Rs 55,000 crore that a discom used to earn during a 30-45 day cycle last year, the average collections during the last 30-odd days have fallen to about Rs 12,000 crore.

The Union power ministry will now seek to fast-track a Rs 70,000 crore financial package that will aid the beleaguered power companies to navigate this difficult period.

The package, which could be taken to the cabinet for approval as early as next week, is likely to offer a moratorium and restructuring of debt repayment by power companies spread over an eight-year period, officials said.

A revision in the tariff structure, which will allow power companies to charge higher rates from consumers, is also a possibility after economic activity gathers pace and companies gradually start scaling up operations.

The power sector has been hard hit with the lockdown since the producer has to pay for a fixed charge to keep the generation going despite much lower consumption.

The Centre is looking to introduce several reforms including limiting cross-subsidies where industrial consumers pay a higher rate to enable discoms to keep rates of domestic consumers low.

Thermal power companies that account for 70 percent of India’s power generation have had to put up with the system of paying for coal in advance and stocking these up by paying high railway freight rates despite falling demand, denting their cash position.

“The last issue is being resolved through a Usance letter of credit or deferred payment of credit,” a power ministry official said.