Steps to Revitalise GENCOs

If we look at the mounting amount of dues that GENCOs have to collect from the DISCOMs, it’s really alarming. Forget about recovery, controlling escalation of dues is the need of the hour. What is MoP doing? Is that enough?   - P. K. Chatterjee (PK)

The last month, I mean February 2022, was quite eventful for the Indian power industry considering revelations of some of the trendy outlooks and major planning decisions of the union government. In a meeting of the Parliamentary Consultative Committee attached to the Ministry of Power (MoP), it was informed that – “The government has brought about a transformational change in the power sector over the past few years. With total installed generation capacity of 394 GW including renewable energy capacity of 104 GW as of today (17.02.2022), our country has transformed from a Power Deficit to a Power Surplus country. Adequate transmission network has been created with enhanced inter-regional transfer capacity of over 1 Lakh MW and connecting the entire country into one integrated grid running on one frequency. The country achieved 100% village electrification and universal electricity access to all the households with significant improvement in availability of Power Supply in both rural and urban areas. The availability of power in rural areas, which was about 12.5 hours in 2015 has gone up to 22.5 hours and in the urban areas it has gone up to 23.36 hours.”

GENCOs are facing big financial challenges

Power Distribution remains the most critical link in the power sector value chain. It generates cash that feeds to the entire value chain right up to power generation and fuel supply. The impact of any inefficiency of financial management within power distribution flows to all upstream players in the value chain that adversely affects their operations and financial viability.

According to the government, one of the cases to pinpoint is mounting Genco dues to DISCOMs – it has reached at an alarming level of Rs. 98,722 Cr as on 31.01.2022 for Central Generating stations, IPPs and RE Generators put together. If the dues of State GENCOs (Rs. 63,000 crores) are also included, the total outstanding dues of GENCOs would be Rs. 1.6 Lakh crores. Thus, it is high time to assess the measures and remedies being undertaken.

A presentation from the MoP

The Government of India has initiated multiple initiatives to address the issue of surmounting GENCO dues and worsening financial performance of DISCOMs. These initiatives have been designed to tackle financial and operational issues like high AT&C Losses, high ACS_ARR gap, inadequate corporate governance, poor liquidity, lack of consumer-focused approach etc., to bring in desired financial discipline in DISCOMs and State Governments.

MoP’s new order

LC-based Payment Security Mechanism: The Ministry of Power has issued an order on June 28, 2019 regarding opening and maintaining an adequate Letter of Credit (LC) as a payment security mechanism under Power Purchase Agreements (PPAs) by DISCOMs. The order mandates National Load Dispatch Center (NLDC) and regional Load Dispatch Centers (RLDC) to dispatch power only after it is intimated by GENCO and DISCOM that a Letter of Credit for the desired quantum of power has been opened and copies made available to the concerned GENCO.

PRAAPTI Portal for Monitoring of GENCO Dues: The Ministry of Power (through    PFC) has launched a web-portal called PRAAPTI (Payment Ratification and Analysis in Power procurement for bringing transparency in invoicing of generators) for transparency in monitoring of GENCOs dues at the national level. The portal was launched in 2018 and provides updated monthly information to all stakeholders regarding power purchase dues of DISCOMs towards Central Generation Stations, IPPs and RE providers. The PRAAPTI portal is immensely helpful for all stakeholders and also for monitoring performance on DISCOMs under Additional Borrowing Scheme, RDSS etc.

Revamped Distribution Sector Scheme (RDSS): The Government of India has launched the Revamped Distribution Sector Scheme (RDSS) to help DISCOMs improve their operational efficiencies and financial sustainability by providing result linked financial assistance to DISCOMs to strengthen supply infrastructure based on meeting prequalifying criteria and achieving basic minimum benchmarks. The main objectives of RDSS are:

  • Reduction of AT&C losses to pan-India levels of 12-15% by 2024-25
  • Reduction of ACS-ARR gap to zero by 2024-25.
  • Improvement in the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector.

The scheme comprises two components – Part A: Financial support for Prepaid Smart Metering and System Metering and Up-gradation of Distribution Infrastructure; and Part B: Training and capacity building and other enabling supporting activities.

Through this scheme States or DISCOMs would be able to access funds for addressing infrastructure constraints in their distribution system as well as for its further augmentation or strengthening. This scheme provides for installation of prepaid smart meters with two-way communication features for over 25 crores electricity connections under TOTEX mode, which will help in reducing AT&C losses and facilitating automatic measurement of energy flows and enable energy accounting and auditing without any human intervention.

PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Uttthaan Mahabhiyan) Scheme: PM-KUSUM Scheme was launched in 2019 with an aim to provide energy security to consumers. This scheme provides performance-based incentives or funding support to promote installation of decentralized solar energy installations for provision of electricity to Agriculture Pump-sets. Under this scheme, Central Finance Assistance (CFA) up to 30% is provided and balance 70% can be mobilized as loan through FIs/Banks/NABARD.

Additional Borrowing Scheme: In line with recommendations of the Fifteenth Finance Commission, Ministry of Finance (GoI) has launched a program in June 2021 to allow additional borrowing space to State Governments, which is conditional on them undertaking and sustaining specific reforms in the power sector. The additional borrowing limit permitted for power sector reforms is 0.5% of the Gross State Domestic Product (GSDP) of the respective state. It is expected that the scheme would help improve financial performance of DISCOMs, which will enable them to settle outstanding liabilities including GENCO dues.

As per guidelines issued, the states’ eligibility would be determined through evaluation across three components:

  • Entry level eligibility conditions – To be fulfilled for becoming eligible for performance evaluation;
  • Performance evaluation criteria – Marking scheme;
  • Bonus Marks criteria.

Revised Additional Prudential Norms for Working Capital Loan to DICOMs/TRANSCOs/GENCOs: At the insistence of the Ministry of Power, the Power Sector NBFCs (PFC and REC) under their administrative control have introduced additional prudential guidelines for sanctioning of working capital loans to DISCOMs/TRANSCOs/GENCOs. These essentially entail that loans to DISCOMs and other State owned utilities would be contingent to their performance against prescribed conditions. The prudential norms for DISCOMs include – timely availability of audited annual accounts; timely filling of tariff petitions; timely issuance of tariff orders; determination of full cost tariff by SERCs; timely release of subside by State Governments; adherence to working capital norm as a percentage of revenue; outstanding Govt. Department electricity bills; AT&C trajectory and ACS-ARR gap as prescribed by MOP/GOI scheme; no default to any FI/ bank; preparation of quarterly accounts.

Corporate Governance Guidelines: ‘Guidelines for Corporate Governance of State Power Distribution Utilities (DISCOMs)’ has been forwarded to States/UTs by Secretary (Power) on 11th March 2021, to enable mechanisms for performance improvement and accountability, which provides a framework drawing from Companies Act 2013, DPE Guidelines, SEBI Regulations and best practices followed by private DISCOMs, which will be an enabling mechanism for improving the performance and accountability in State Owned DISCOMs. It is anticipated that implementation of these guidelines will result in better governance of the DISCOMs leading to overall improvement in their operational and financial performance.

A few things to ponder on

Although the Members of Parliament have offered several suggestions with regard to various initiatives and schemes of MoP, those will take time to be implemented (if at all). However, the government has been trying to mitigate the loss of GENCOs for the last two years and a half. Then where is the actual problem?

Perhaps the DISCOMs or States are still not in a position to manage to generate revenue! More than governance, it is important to improve vigilance and action on the spot. As on January this year, DISCOMs had to pay Rs. 1,21,030 crores to GENCOs, the figure was Rs. 1,15, 904 crores in January 2021. It is a bit more than 4% rise in a year when many industrial units were running slow.

In any case, right now when the economy is regaining its lost vigour, we have to wait and watch… But we have to continue focusing on decentralised power generation and keeping pressure on building more and more captive power plants.

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