How piling dues choke power generation companies

Power generating companies are in a funk. Nearly half the States and Union Territories and power distribution companies aren’t paying them on time. This includes all the Southern States (excluding Telangana), all the northern States (except for Bihar) and a couple of them from the North-East. Data from the Power Ministry’s PRAAPTI portal shows that the amount outstanding touched nearly ₹40,500 crore at the end of November 2018.

Out of the 17 generation companies’ data available on the portal, dues of two listed companies — NTPC at ₹16,509 crore and Adani Power at ₹7,321 crore — are the highest. The pending dues varies from 0 days to over 60 days. Compared to this, Tata Power Co Ltd, another listed company, has outstanding dues of just around ₹980 crore as of November.

In terms of generation capacity, NTPC is miles ahead when compared with Adani Power and Tata Power. It has an installed generation capacity of 53,166 MW while Tata Power has 10,587 MW and Adani Power 10,480 MW. Tata Power also houses its renewable energy and power distribution businesses in the larger Tata Power Group of companies. But still, a majority of Tata Power’s business comes from thermal power, as does Adani’s and NTPC’s.

Spiralling fuel costs

Apart from unpaid dues, power generators also deal with under recovery of fuel costs. Since most of thermal power plants use coal as a fuel, change in prices of this raw material directly affects their profitability. Although all three have been plagued by the impact of rising international coal prices, and a domestic shortage of coal, Tata Power and Adani Power have, in particular, seen their profits take a hit due to under-recoveries.

The under-recovery issue has been plaguing the power sector ever since the government introduced a clean energy cess on coal consumption in 2015. In addition, there was a spike in prices of coal prices, both domestically and in international markets. According to power generating companies’ tariff agreement, they can only pass those increase in costs to consumers which the State or Central power regulator allows.

More pain for Adani Power

For Tata Power and Adani Power — their Mundra ultra-mega power plants which are a significant portion of their overall capacity — the inability to pass on the rise in costs have hurt more.

Adani Power in particular is facing many delays in approval of pass-through costs. This has led the company to post a loss of nearly ₹1,200 crore in Q3FY19. This is despite the company recognising in its books as revenue future relief due on fuel costs and invoices raised on distribution companies. Adani Power’s auditors have qualified these adjustments in their audit report.

Tata Power, which has an integrated power business, also has nearly one-third of its installed capacity in the form of renewable sources. The expansion of its renewable portfolio is helping it report higher profits. The company is also expanding its thermal installed capacity through an acquisition of a 1,980-MW power plant in Uttar Pradesh, through joint venture firm Resurgent Power Ventures.

But NTPC, by the sheer size of its operations, is still ahead of the two private companies. Although it has a considerable amount of debt on its books, it sits pretty with an interest coverage ratio of over 4. Aside from being a consistent dividend payer (nearly 41 per cent of its profits to its shareholders in 2017-18), NTPC is still poised for strong growth in the future because it’s generating cash every year. And it has more projects that will come on stream soon.

Tata Power has been trying to de-leverage its balance sheet, but its interest coverage ratio has been deteriorating since 2016-17. The under-recovery in fuels costs only added fuel to the fire.

Adani Power though looks to be in a precarious situation. The company hasn’t reported a quarterly profit at a consolidated level for nearly a year now. The slow progression of various petitions at Central and State regulatory commissions are also causing the company to report high losses.

When delayed payments from power distribution companies are added into the midst, power generators will have to borrow to serve their working capital needs, stretching their balance sheets further. Even after sweeping reforms for State distribution companies that were unveiled under the UDAY scheme by this government, it seems unpaid bills of distribution companies might cause another crisis in the sector.

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