NEW DELHI: New Delhi: Cash-strapped power distribution companies (discoms) have steeply cut purchase of costly power from the open market, in what could lead to a higher incidence of load shedding across the country and crimp industrial units at a time the economic growth has slowed to a nine-year low. With the slump in demand from discoms and industrial units that purchase power in the open market, merchant power units and traders could realise up to 11% less for each unit of energy sold in April-May this year, compared with the year-ago period. As most discoms have chosen not to purchase from the open market even as they face shortfalls, the volume of power produced by merchant plants too has declined, industry sources say.
The two largest traders — PTC India and NTPC Vidyut Vyapar Nigam (NVVN) — have both reported a drop in the volume of trade as also realisations during April-May. The two account for over 50% of the total merchant power sale. PTC India sold 1,668 and 1,748 million units of electricity in April and May 2011. In comparison, it traded 1,658 and 1,583 million units in the same months this year.
It reported a price realisation of R4.60-5 and R4.5-5 a unit in April and May of 2011, whereas its revenue realisation was R4.30-4.60 and R4-4.30 in the corresponding months of the current year.
NVVN, which is the second-largest power trader after PTC India, sold 450 and 720 million units of electricity during April and May of 2011, respectively. In comparison, the company traded just 445 and 510 million units, respectively, in April and May this year. While the average price realisation by the company during April and May 2011 was R4.68 and R5.52 a unit, it worked out to R4.35 and R4.21 a unit, respectively, during the same months of the current year.
“The fall in traded volume is due to apprehension on account of the poor financial health of the discoms,” NVVN CEO Anil Agarwal said.
Power sold by merchant plants and traders constitute the open market that accounts for around 10% of the total market. The rest of the market is regulated and here, pro-active tariff fixation by regulators has raised prices to the consumer in recent months. So either way, prospects are grim for electricity consumers — industries, businesses and households.
Discoms’ combined losses are estimated to have crossed a whopping Rs 2 lakh crore in 2011-12, forcing the Reserve Bank ofIndiato ask banks to exercise increased circumspection in lending to them.
The average power purchase cost of discoms has risen up to 40% over the last two years and at least half of this extra cost has been passed on to consumers through tariff hikes.
Open market for power started inIndiain 2000, but volumes are still small thanks to inadequate reform and poor infrastructure. This is even as this market has seen a compounded annual growth of 35% during the last five years. Trading through exchanges account for only a tiny fraction of the open market trade.
Last September, RBI directed banks to exercise restraint in making fresh advances to disoms after it was brought to its knowledge by the power ministry that these companies were using short- term bank loans to finance their losses arising from non-revision of tariffs.
“The financial situation of the state electricity boards’ continues to be grim. So despite large deficits, they are reluctant to buy electricity from the market,” said Shubhranshu Patnaik, senior consultant, DeloitteIndia. The RBI has decided in consultation with the Union power ministry that banks will issue short term loans to discoms based on credit ratings to be issued by an agency appointed by the ministry. The Union power ministry has recently kicked off process by issuing guidelines for assessing creditworthiness of discoms.
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