Covid-19: Securing a safe passage for power sector through turbulence

As the world reels under the most daunting challenge faced by humanity in spite of a slowing economy, India has gone through an unprecedented lockdown with a nation-wide curfew since 25 th March 2020 with great rectitude.

There is hope for a gradual phased re-opening of the economy in the coming month when our struggle to stabilize and then revive will begin. The estimated loss to GDP due to shutdown till 3 rd May 2020 is between Rs.10 lakh crores to Rs.18 lakh crores with the resultant shortfall in public finances.

The power sector was already in a fragile state economically in end 2019 – losing around Rs.150,000 crores in tariff annually (with a subsidy burden of Rs.90,000 crores). The sector was operating with rising losses of over 28%; mounting defaults by state discoms owing around Rs.100,000 crores overdue payment to generators; dropping PLF of 50% to 55% (45% installed capacity lying idle); and nearly half of the NPAs in India linked to the power sector. As a result, a spate of contracts were not getting implemented (suspended, rescinded, or re-opened) resulting in disputes.

That led to a scenario where recent invitations-to-bid went responded. Today Indian power sector faces a survival challenge with a heavy-handed last straw of COVID-19 induced shutdown. This has led to a drop in demand for power of 25% to 28% – primarily attributable to the manufacturing sector which is operating at below 50% capacity.

Compounded by the migrant labour issues, epidemiologically driven public health norms, liquidity crisis, this demand will take a while before we can see it grow back. As a part of the ameliorate relief, several states have now announced diverse relaxation in payment of power dues to consumers (some giving it free while others slashing the rates and deferring the payment date).

Notices threatening to terminate or suspend off-take and payment commitments by states claiming supervening impossibility, frustration of contract or force majeure are now routine. If something is not done urgently, this will culminate in a ruin of the sector’s economics besides overwhelming the already burdened regulatory and judicial system with a deluge of claims and disputes.

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