New Delhi: Around Rs 1 lakh crore worth of loans extended to the thermal power companies in India have gone bad, comprising 18 per cent of the total outstanding debt for the power sector, according to The Energy and Resources Institute (TERI).
“The causes of these stranded assets were the imprudent capacity expansion that occurred in the period 2010-15; demand growth slowdown after 2012; and upstream (coal linkages) and downstream (Power purchase agreement tie-ups) challenges in the power sector value chain,” the institute has said in a research paper.
Due to the occasionally reckless expansion of coal-fired generation capacity in the period 2010-2015, there is now a substantial capacity of coal-fired plants that are stranded or stressed assets, according to the paper authored by TERI Fellow Thomas Spencer.
The stranded or stressed generation capacity includes 54,000 Megawatt (Mw) of coal-fired plants and 7,000 Mw of natural gas-fired projects. The study found that while supply has improved and the energy deficit has come down, many parts of the country still face unreliable supply with rural areas facing typically 20-30 interruptions per month.
The paper also said Aggregate Technical and Commercial (AT&C) losses in the electricity sector at 18.7 per cent remain very high as compared to other nations. “End-user prices are distorted by cross-subsidy with an aggregate gap between cost of supply and revenue realization still of about Rs 0.26 per kWh. This implies an annual revenue shortfall of around Rs 32,600 crore or 1.6 per cent of the total annual tax intake,” the paper said.
The Indian power sector faces a huge challenge in the form of incomplete cross-subsidy on tariffs from high-paying industry and commercial consumers to tariffs from low-paying agricultural and residential consumers.
In order to plug the gap in the tariff subsidy state governments also provide direct budgetary support to distribution companies. However, the gap in the tariff subsidy is not fully made up by such fiscal subsidies from state governments leaving distribution firms with large accumulated and growing losses.
Dues of around Rs 67,400 crore were outstanding from distribution companies to generators at the end of June 2019, according to power ministry data. This is despite the bailout of distribution company’s debt of Rs 2.32 lakh crore under the Ujjwal Discom Assurance Yojana (Uday) scheme.