RK Singh, Minister of State (Independent Charge) for Power and New and Renewable Energy, believes that consumers will save up to 25% of their monthly bills thanks to the 90 000 crore allocated to power distribution companies (Discoms) under the Atma Nirbhar Bharat economic package.
The package, announced on Wednesday, focuses on helping Discoms clear up their debts to Central Power Generation (Gencos) companies. In an interview with BusinessLine, Singh said that these Gencos will also offer discounts to reduce the cost of procurement for Discoms that can be passed on to end-users. Extracts:
How much effective savings will be made on the monthly electricity bills of the consumer?
Direct savings of 20-25% will be made in electricity bills raised for residential consumers this month, following measures taken by the government. We also expect Discoms to defer fixed charges for industrial consumers and to recover them in three equal installments at a later date.
We have been told that consumers will see a reduction in tariffs as a result of this package. How is this transmission going to happen?
Loans available to Discoms at low interest rates will enable them to pay Gencos for the power they have already acquired. They were unable to make the payments right now because the receipts from the Discoms had dropped to their lowest level. There was a recovery of only 15% because all the industrial and commercial sectors were closed and the domestic sector 's revenues were down to just 10-15%. So, the Discoms were unable to pay for the Gencos.
We had instructed the Gencos not to reduce power supplies even if no payments had been made. Although the Gencos had complied and continued supplies 24x7, they were also under strain. Now, this package will allow Discoms to pay Gencos, who will then be able to make payments to the coal and rail companies. This lowers the burden on Discoms and eliminates the burden on Gencos.
During the lockdown period there was a significant drop in demand due to the closure of industrial and commercial units. Pursuant to the Power Purchase Agreements, Discoms shall pay Gencos a fixed charge for all the contracted quantity, even if it is not collected. This fixed charge varies from +1 to +1.50 per unit. This burdened the Discoms because they paid for the power that was not used during the lockdown period. We are deferring the fixed charge for the lockdown period and it will be refunded in three equal installments in the following months.
The deferment of fixed charges may be passed on to the industrial sector by the Discoms. Power costs incurred by central public sector undertakings such as NTPC will also be reduced by 20-25% for the lock-down period. We want these cost savings to be passed on to the final consumers by the Discoms.
It's good enough. The ₹94,000 crore mentioned also includes Gencos, which is owned by the state government. There would also have been some achievements of the Discoms during this period. So, 90,000 crore (to clear the fees) is sufficient.
At what rate will Power Finance Corporation and REC lend to Discoms?
We asked PFC and REC to reduce their spread to 1.5 per cent, usually 2.5-3 per cent. Loans will therefore be at low interest rates — everywhere between 8.5 and 9 per cent. This is much cheaper than the late payment surcharge that the Discoms have to pay on the outstanding fees. The late payment surcharge is almost 18%. We've brought it down to 12% for the Covid-19 period, and it's going to return to the higher rate after that period.
This loan is available at a maximum of 9%, which will significantly reduce the burden on Discoms. Apart from that, this fund is repayable over a period of 10 years with a two-year moratorium at this low interest rate. So, I can't see any State withdrawing from this.
Will the ₹90,000 crore be borrowed by PFC and REC or will it come as a grant from the Centre?
PFC and REC are raising the funds. They 're going to do their usual business of lending to the power sector.
Will you accept the demand for a complete waiving of fixed charges during the lock-down months?
A waiver is not possible because these fixed charges represent the repayment of loans taken for the construction of thermal or hydropower projects. So, a complete waiver is not possible, but it has been delayed.
The measures taken have fully reinvigorated the sector and relieved the final consumers of a fixed charge deferral and reduced power costs.
