The grave economic impact of the COVID-19 outbreak is being felt across all segments of the power sector, including renewable energy. To try and slow the spread of Coronavirus, a countrywide three-week lockdown order was issued by Prime Minister Modi, which will be in effect until April 14, 2020.
Power is designated as an essential service by the Ministry of Home Affairs, and power generators (including renewables) in the country have been ordered to maintain an uninterrupted supply of power across states even if the distribution companies (DISCOMs) deposit Letters of Credit for 50% of the cost of power they want to be scheduled. For payments delayed beyond 45 days (from March 24, 2020, and June 30, 2020), the late payment surcharge has now been reduced to 12% per annum from the earlier 18%.
Even with all the relief provided, many DISCOMs, including those in Uttar Pradesh, Madhya Pradesh, and Andhra Pradesh, have been refusing to pay the power generators claiming their inability to collect power dues from the consumers. On the other hand, the DISCOMs’ claim of force majeure (Coronavirus outbreak) for not paying generators has been rejected by the Solar Energy Corporation of India (SECI).
As of February, DISCOMs owed power generators ₹924.25 billion (~$12.19 billion).
Given the situation, it is time to assess why the finances of state-owned DISCOMs are so fragile that a 21-day lockdown has left them unable to pay the generators for months? Especially when more and more consumers are being billed and are paying online. Most commercial units opt for automatic online bill payments and form a large part of DISCOM revenues.
Mercom spoke to DISCOMs in several cities to understand this issue better.
An official at the Bangalore Electricity Supply Company (BESCOM) told Mercom that they have over 11.81 million consumers (as of March 31, 2019) and the revenue for the financial year (FY) 2018-19 was ₹183.61 billion ($2.43 billion). Of this, ₹112.81 billion ($1.49 billion) came through online payment gateways like Electronic Service (ECS), debit or credit card, and net banking. So, about 61% of their bill collections came through online payment modes.
In Andhra Pradesh, 60-70% of urban consumers pay their bills online. The state also has hired consultants to assist in the collection of dues maintaining COVID-19 protocol. The state has not just been innovative but also proactive by launching an app and training the urban population to pay their bills online. The state aims to have 80% of consumers who pay bills online. For high-tension consumers and those with bills exceeding ₹10,000 ($132), they only accept payments online.
Maharashtra State Electricity Distribution Company (MSEDCL) has chosen the route of incentivizing online payments by giving consumers rebates. Most of their high-tension consumers pay online as they get incentives, including a 1% rebate for those paying their bills on the day the bill is generated, the higher the bill, the more the savings. Of the 25 million customers in the states, 7.3 million consumers (30%) have opted to pay online as of March 31, 2020.
In Madhya Pradesh, an official at the DISCOM told Mercom that 60% of urban consumers and all of the industrial power consumers pay their utility bills online.
Punjab State Power Corporation Limited (PSPCL) boasts of being the leading DISCOM when it comes to digital transactions, and it collects over 65% of its power bills digitally. While in Uttar Pradesh, an average of about 25% of consumers pay the electricity bills online, which is 17.5% of total power revenue collection.
Telangana Southern Power Distribution Company Limited (TSPDCL) has been collecting 100% of the bills from high-tension consumers through the Virtual Accounts Mechanism with the State Bank of India (SBI). Currently, more than 75% of the total revenue of DISCOMs is being collected in Telanagana through online payments.
There will be low bill collections in March, considering that most commercial and industrial companies were shut down most of the month. To make it through this crisis, most DISCOMs are going to take the average of the previous bills, and the information will be sent through email, WhatsApp, and text messages. Most DISCOMs have considered starting work normally from May.
Considering that most of DISCOM revenues are realized through online bill payments, their outright refusal to pay generators claiming inability to collect power dues from consumers seems overstated. DISCOMs in India are known to delay payments, sometimes for over six months, even when things were good, and now the excuse of the ongoing lockdown doesn’t seem surprising.
The government agencies, instead of ensuring payments by DISCOMs (even in smaller batches), have instead chosen to penalize the power generators. This has led to unprecedented stress, uncertainty, and cash flow issues for generators, which will likely lead to financial hardships that could result in the inability to pay bank loans and contribute to further job losses.
Providing basic infrastructures like water, electricity, and roads are the responsibility of the government. Instead of protecting DISCOMs by placing the risk on generators, the government should provide financial aid to the DISCOMs to pay their dues on time.
“It is more evident than ever that DISCOMs are the weakest link in the power sector and the government should seriously develop a plan to privatize state-owned distribution companies. DISCOMs have been curtailing power and delaying payments even in the best of times. It is impossible to attract foreign investments when the offtaker is so weak,” said Raj Prabhu, CEO of Mercom Capital Group.
Image credit: Invergy
Priya currently serves as the Publisher for MercomIndia.com. With more than a decade of experience working in corporate communications, research, and policy, Priya has deep roots in the Indian energy markets and is regularly in touch with policy makers and industry leaders. Priya received her bachelor’s degree from Vidya Vardhaka College of Arts in Bangalore, India for Political Science and Economics and completed her MBA from Bangalore University. More articles from Priya Sanjay.