India’s power retailers may need to start paying in advance for their electricity purchase in a bid to ease financial stress at generators.
Concerned over delayed payments to generators, the federal power ministry has formed a panel to examine if distribution companies should pay generators in advance for electricity purchases, according to a power ministry document reviewed by Bloomberg. A power ministry spokesman confirmed the development.
India’s power producers, among the biggest holders of soured loans in the country, have cited mounting dues from retailers as a key reason for their financial stress. That impedes debt repayments and forces generators to borrow working capital, worsening their debt profile.
Outstanding payments owed to generators rose almost 29 percent from a year earlier to 412 billion rupees ($5.7 billion) at the end of November, according to the latest official data. NTPC Ltd., the country’s largest generator, said its trade receivables rose to 127.8 billion rupees as of Sept. 30, an increase of almost 69 percent since March.
The panel, headed by the Central Electricity Authority’s chairperson, has been asked to submit its report by the end of the month, according to the Jan. 31 document.
“Steps to secure timely payments to generation companies need to be complemented with structural distribution reforms, such as timely subsidy payments by states and bridging the gap between cost of power and revenue earned from sale,” said Rupesh Sankhe, an analyst at Reliance Securities Ltd. in Mumbai. “Without addressing these key problems, it is difficult to find a sustainable solution to payment delays.”
Indian power retailers don’t get paid on average for a fifth of the electricity they supply, mainly because of theft, sloppy billing and revenue collection, and leakages through old cable networks that haven’t been upgraded for decades for lack of money. On average, these utilities lose out 0.34 rupees on the sale of every kilowatt hour of power, government data show.