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17 August 2022

Indian Distribution Companies’ delayed payments reach $14.4 billion

The Indian Ministry of Power’s latest statistics now find that distribution companies across the subcontinent have collectively reached $14.4 billion in overdue payments to generating companies. Typically these overdue payments are paid in a month or two, but the figure for end July is 10% higher than the end of May, and has been growing consistently for years, with total debt of the distribution companies now reaching $75 billion, double the figure from 2015. In twelve of India’s states, the cost of a bailout would be more than 1% of GDP – the worst case being Tamil Nadu, at 5.2%.

It is a problem which the federal government has so far been unable to stamp out, but several new actions have been taken recently. One such is the publication of the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, which appears to enable generators to cut their power supply to distribution companies by 25% when payments have been delayed for more than two and a half months, and can shift to 100% non-provision another 30 days after that.

India’s Prime Minister Narendra Modi has once again called on state governments to pay off their owed money to distribution companies and generating companies. In recent weeks the Prime Minister announced a $38 billion spending package for power grid reforms, the fifth such initiative since his tenure began in 2014.

All told, according to the Prime Minister, various unpaid electricity dues across India come to $31.5 billion, with $12.8 billion in electricity payments and $9.6 billion in subsidies owed to non-state-owned generating companies by States and Union Territories, of which a little over a quarter is owed to Central Public Sector Enterprises (CPSEs). Dues owed for their own consumption by various stage government departments to distribution companies come to $7.9 billion.

So not only are the distribution companies not paying, they are not being paid, and back in March, just five months ago, all of those figures were about 10% lower.

Maharashtra and Tamil Nadu each owe over $2.5 billion to generators, while Telangana, Andhra Pradesh, and again Maharashtra are those most laggard in paying their distribution companies. Even Narendra Modi’s home state, Rajasthan, has $2 billion in the distinct measure of subsidy arrears.

Unpaid dues for power generation have been a major obstacle to Indian renewable energy development – they get paid eventually, and multiple court cases have been won by developers and generating companies, but still the delay is bad for the bottom line.

Prime Minister Narendra Modi has repeatedly addressed the issue of unpaid dues as impeding his renewable energy development policies. Because both state-level distribution companies and state governments are at fault, while Modi’s federal government is behind the push for more renewables, the issue has become tangled with the broader political issue of states’ rights.

The recently passed Electricity Amendment Bill 2022 sparked major controversy along those lines, with protesting farmers burning copies of the bill and opposition parties calling it an attack on India’s federal government form. One of the major provisions of the bill is to allow private companies to secure licenses for power generation. Perhaps the idea is that these companies will be less beholden to state governments and can more readily call in the legal system to enforce payments. Criticism of this idea is that it threatens to lump state-owned actors with all the power supply and infrastructure obligations while private businesses select only the most profitable areas, namely the commercial and industrial sector.

In a speech at the end of July launching the Power Ministry’s Revamped Distribution Sector Scheme, which is the aforementioned $38 billion spend, the Prime minister singled out Maharashtra, Tamil Nadu, Telangana, Andhra Pradesh, and Rajasthan as the worst offenders – a short list which features three of the top five states for wind development and four of the top five solar states. Andhra Pradesh was the location of the latest high-profile, High Court case defending the rights of renewable energy generators – tariff renegotiations are another common trick on the part of the states and distribution companies.

According to the Prime Minister, “several states are trying to hide the issue instead of solving it,” delaying payments as far into the future as they can, and creating an ever greater crisis. “Losses in the distribution sector are in double digits, while the same in developed nations are in single digits.” The Prime Minister added that “most of the time electricity companies have a crisis of funds, and they continue to use old transmission and distribution lines that cause high losses. As a result, the power becomes costlier for consumers.”

The ability of the government to iron out these kinds of creases will have major consequences for not just renewables but also entire economic development – India’s power-sector Central Public Sector Enterprises, albeit only one part of the picture, invested a mere $4 billion in the first half of FY 2022, and transmission losses average 21% across the subcontinent. The latest reform says it wants to bring that down by almost half, but that’s still double the losses seen on a developed country’s grid.