With the power sector trapped in financial distress as a result of burgeoning discom losses – made worse by COVID 19 – a single financial package may not suffice.
Deeper sectoral reform and re-examination may be an issue that has now been flagged red by the Power Ministry to the 15th Finance Commission as it prepares its final report.
A key request made to the Finance Commission is to relax the borrowing limits of States under the Fiscal Responsibility and Budgetary Management Act (FRBM) and to expand the borrowing space for States , in particular for power due related concerns.
The Ministry of Power is told that it has written to the 15th Finance Commission to draw attention to the extremely troubling situation of discomfort and to make a range of suggestions for a reboot so that they can be included in the final FC report.
ET contends that Power Minister R K Singh has presented the question directly to the 15th Finance Commission.
Sources told ET that the Commission is preparing to address the 'elephant in the room'-the issue of discomfort and its overall impact on the financial health of the state as well as the effectiveness of the Ujjwal DISCOM Assurance Yojana' (UDAY)-in the light of the Ministry of Power Communication.
The power ministry has been concerned about how many states have exceeded the borrowing limits under the FRBM Act.
In such a situation, the Rs 90,000 Crore Central Package announced this week will also not be able to be guaranteed.
Has the Center announced an economic revival in the midst of the COVID 19 pandemic as part of its first tranche of announcements? 90,000-crore loan "against State (Government) Guarantee" to discom.
The Power Ministry sought a re-examination of the FRBM borrowing cap for States by the Finance Commission in order to allow for the inclusion of discom losses / dues. The Ministry asked the FC to make this recommendation in its report to pave the way for States to amend the laws needed for the same and to free up the borrowing room for States to clear up outstanding discom dues.
The Ministry also proposed that arrangements should be made to explicitly subtract RBI from the national budgets of the National Thermal Power Corporation-a suggestion from the NTPC.
Over 14,000 crores are expected to be billed to NTPC by various state power boards. At the end of the discom-their average price for power producers is at Rs 90,577 crore, as at March 2020. Over 80% of these are due with the highest unpaid fees in Uttar Pradesh, Telangana, Karnataka, J&K and Ladakh.
NTPC has sought that the terms of the Tripartite Agreements (TPAs) renewed in 2016 be invoked in order to clear the annoyance charges.
As regards the TPAs – of which the RBI, the Power Ministry and the States are signatories – the RBI is allowed to deduct the sums due directly from the States and to pay them to power-producing companies. However, the TPA is not usually used because of the impact it may have on the finances of the state.
