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Short-circuiting gencos: Govt should not pass the power crisis buck to the private sector

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Given the Centre has allowed the cost of imported coal to be passed through till end-December, it should not have been difficult for power producers to use imported coal.

The Union government’s diktat to power generation companies (gencos) that run on imported coal, to operate at full capacity, smacks of high-handedness, and is hardly a solution to the escalating energy crisis in the country. With coal stocks down to nine days’ supply, and demand for electricity soaring, the government has invoked Section 11 of the Electricity Act. It has mandated other producers to import 10% of their coal requirements, rather than 4%, and blend this with domestically-produced coal, so as to enable them to meet the coal stock norms.

By one estimate, this could result in additional generation of around 7GW. The decision has been in the making since mid-April when power minister RK Singh chaired a meeting with some stakeholders. Coal minister Pralhad Joshi said on Friday the decision to enforce Section 11 of the Act has been taken as some plants were not operational. Joshi said coal stocks with thermal plants are currently at around 21 million tonnes and that steps are being taken to address any surge in demand in the months ahead.

Given the Centre has allowed the cost of imported coal to be passed through till end-December, it should not have been difficult for power producers to use imported coal. However, the Independent Power Producers (IPP) point out they simply do not have the funds to buy imported coal, because they haven’t received payments from the state-owned discoms. IPPs have explained their predicament to the government, highlighting that their working capital limits are full up. Under the circumstances, it would be unfair to expect them to take on the burden of importing coal. If the government wants the IPPs to import expensive coal—at one point, over $300 per tonne—the discoms need to pay up. The Praapti portal shows payments due to the gencos from discoms have soared to Rs 1 trillion at the end of April. Of this, the bulk of `60,000 crore is owed to private sector gencos. It is not surprising therefore, that just about 10,000 MW of the total capacity of 17,000 MW based on imported coal is currently operational.

The government cannot pass the buck to the private sector by asking them to bear the higher cost of imported coal on the grounds that the circumstances are extraordinary. It must own responsibility for the current crisis and pick up the tab. It is surprising there is no directive to errant states asking them to cough up the dues to gencos. Subjecting private companies to strict timelines is also unfair. The producers have been asked to ensure at least half the mandated quantity is imported by end-June, 40% by August and the remaining 10% by end-October. The Power Producers Association has sought a line of credit in the nature of bridge financing for the 16 million tonnes that the private producers would need to import; the remaining 22 million tonnes would be imported by state-owned producers. Even as it works to clear their dues, the government must provide soft loans to private producers. Also, it must ensure that the discoms buy the power and don’t back down because of high tariffs.

While the government has been trying to fix the discoms, the fact is they still have accumulated losses of over Rs 5 trillion and regulatory assets—deferred costs to be recovered from future tariff revisions—worth Rs 1.25 trillion. Also, while coal can be imported during periods of high demand, production of coal needs to be stepped up. While production in FY22 was a strong 777 million tonnes, it needs to be scaled up. And, to ensure that the coal is transported in time, there need to be enough rakes available. Instead of arbitrary micro-management by forcing private power producers to import, the government must assure them their dues will be cleared and the power they generate will be drawn down.

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