‘New package for power sector will significantly reduce the burden of Discoms’
RK Singh, Minister of State (Independent Charge) for Power and New and Renewable Energy, believes that consumers will save of up to 25 per cent on their monthly bills, thanks to the ₹90,000 crore earmarked for power distribution companies (Discoms) under the Aatmanirbhar Bharat economic package.
The package, announced on Wednesday, focusses on helping Discoms clear their dues to Central power generation companies (Gencos). In an interview to BusinessLine, Singh said that these Gencos will also be offering a discount to reduce procurement costs for Discoms that can be passed through to end consumers. Excerpts:
How much will be the effective savings on a consumers monthly electricity bills?
There will be a direct saving of 20-25 per cent in the electricity bills raised this month for residential consumers after the measures undertaken by the government. For industrial consumers, we expect the Discoms to also defer fixed charges and recover them in three equal instalments later.
We were told that the consumers will see tariff reduction because of this package. How will that transmission happen?
Loans available to Discoms at low rates of interest will allow them to pay the Gencos for the power already procured. They were unable to make the payments right now because the receipts of Discoms had fallen to their lowest levels. There was a recovery of just 15 per cent because all industrial and commercial sectors were closed and receipts from the domestic sector were down to just 10-15 per cent. So, the Discoms were not able pay Gencos.
We had instructed the Gencos to not curtail power supplies even if payments were not being made. Though the Gencos complied and continued supplies 24×7, they also came under strain. Now this package will allow Discoms to pay the Gencos, who in turn will be able to make payments to coal companies and Railways. This lowers the burden on Discoms and eliminates the load on Gencos.
During the lockdown period, there has been significant drop in demand because industrial and commercial units were closed. According to the Power Purchase Agreements, Discoms pay a fixed charge to Gencos for all the contracted quantity, even if it is not drawn. This fixed charge varies from ₹1 to ₹1.50 a unit. This has burdened the Discoms because they have paid for the power that was not used during the lockdown period. We are deferring the fixed charge for lockdown period and it will be repaid in three equal instalments in subsequent months.
The fixed charge deferment can be passed on by the Discoms to the industrial sector. The cost of power drawn from Central Public Sector undertakings such as NTPC will also be lowered by 20-25 per cent for the lockdown period. We want the Discoms to pass on these cost savings to the end consumers.
The Finance Minister’s presentation stated that the Discom dues stood at ₹ 94,000 crore, but the package is for only ₹90,000 crore…
It is adequate. The ₹94,000 crore mentioned includes dues to State government-owned Gencos too. There would also have been some realisations by the Discoms during this period. So, ₹90,000 crore is sufficient (to clear dues).
At what rate will Power Finance Corporation and REC lend to Discoms?
We have asked PFC and REC to reduce their spread to 1.5 per cent, normally their spread is 2.5-3 per cent. So, the loans will be at low interest rates — anywhere 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 dues. The late payment surcharge is almost 18 per cent. We had brought it down to 12 per cent for the Covid-19 period, it will revert to the higher rate after this period.
This loan is available at 9 per cent maximum, so the burden on Discoms will reduce significantly. Apart from that, this fund is repayable over 10 years with a two-year moratorium at this low rate of interest. So, I don’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 raise the funds. They will do their usual business of lending to the power sector.
Will you accept the demand for completely waiving off fixed charges during the lockdown months?
A waiver is not possible because these fixed charges represent the repayment of loans taken to construct thermal or hydropower projects. So, a complete waiver is not possible, but it has been deferred.
The measures undertaken have completely reinvigorated the sector and relieved the end consumers by a fixed charge deferment and lowering power costs.