Generator woes threaten Modi’s plan to power India

NEW DELHI — India’s ambitious plans to finally provide reliable electricity to its 1.3 billion people are at risk of failing because its power suppliers are in such financial trouble that they cannot pay the companies who generate the electricity.

When Mr Narendra Modi became the country’s Prime Minister in 2014, he promised to provide reliable power by 2019 and put a stop to persistent blackouts, which have plagued the country for decades and — according to analysts — are a major drag on growth.

But industry executives told the Financial Times that utilities in at least four Indian states are months behind on payments to the companies that produce electricity.

This means the generators on whom Mr Modi is relying to build the new infrastructure India needs are not approving new projects, and some are even at risk of failure.

“It has got to the stage where we cannot invest in new projects — all our shareholders want to know is when we are going to get paid,” said one executive at a power company that has not been paid for several months.

The financial difficulties faced by state utilities in India as well as their inability to pay generators have long been at the heart of why India finds it so hard to get reliable electricity to its citizens.

The price of electricity is heavily regulated in India, with tariffs often capped at below the cost of electricity, leaving state governments to make up the difference.

But state governments are then often late in paying the utilities, if they pay them at all, leaving utilities with heavy financial losses and unable to pay the generators.

The executive added, “Regulators come under pressure from local politicians not to put up tariffs. It helps them get reappointed, but it doesn’t help us get paid.”

According to a recent analysis by HDFC Bank, losses across the distribution sector fell 13.5 per cent in 2015 to US$8.7 billion (S$12.3 billion), as many companies slowly became more efficient. But debts — totalling about US$64 billion — remain high, said the paper.

Mr Ajay Mathur, director-general of the Energy and Resources Institute in New Delhi, said, “Utilities would often rather drop a load (cut off the power) than supply electricity at a loss.”

In 2015, the Indian government launched a scheme to restore the distribution companies to financial health by putting their debt on to the books of state governments in return for improvements in performance. But under the terms of the scheme, known as Uday (Ujwal Discom Assurance Yojana or Bright Discom Assurance Scheme), distribution companies cannot take out short-term loans to pay their generators.

Generators say this has created other problems. Mr Sumant Sinha, chief executive of ReNew Power, a renewable energy generator, said, “The working capital pressure has been shifted from the distribution companies’ banks to the generators — we are now financing their working capital for them.”

And local regulators remain reluctant to increase tariffs. In Maharashtra state, for example, the regulator ordered a 5.8 per cent cut in tariffs in 2015-16. MahaVitaran, the state utility, had proposed raising them by 7.9 per cent.

This puts India well behind Western economies in terms of how much consumers pay for electricity. In India, a household will pay between US$0.02 and US$0.08 for a kilowatt hour of power, while in Germany, that figure is closer to US$0.30.

Dr Arunabha Ghosh, chief executive of the Council on Energy, Environment & Water in Delhi, said, “The real test of Uday is not the immediate rack up of losses in the states that have signed on ... but (whether they) have demonstrated signs of raising tariffs.”

The government has acknowledged the problem. “Our tariffs are not based on economic principles,” Mr Rajeev Kapoor, Secretary at the Ministry of New and Renewable Energy, told a conference in New Delhi earlier this month.

The ministry was not able to provide the total amount owed by state utilities to generators, and none of the utilities responded to a request to comment.

The Maharashtra state-owned distribution company recently admitted that it had about US$340 million worth of payments outstanding, something it said was caused by the knock-on effect of customers not paying their bills on time.

Two energy company bosses told Financial Times that the situation in Maharashtra is particularly bad, with state utilities now nine months behind on payments to generators. In other states, such as Madhya Pradesh, Rajasthan and Jharkhand, utilities are closer to four months overdue.

Officials at the power ministry in New Delhi said that the problem was a temporary one, caused by hold-ups in passing state Budgets.

They added that the Uday scheme would take several years to correct the longstanding problems facing utilities. FINANCIAL TIMES