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economy | IST

'Short term' secretary leaves the power sector worried

Mini

Uncertainty looms large on who will be the secretary of the power ministry after outgoing finance secretary and incoming Power Secretary SC Garg confirmed that he has sought voluntary retirement.

Uncertainty looms large on who will be the secretary of the power ministry after outgoing finance secretary and incoming Power Secretary SC Garg confirmed that he has sought voluntary retirement.
Speaking to reporters, Garg said, “I have applied for voluntary retirement from the IAS with effect from October 31.” Even though he is slated to assume charge as power secretary on July 25, Garg’s short stint in office is adding to the power industry’s nervousness as the wait for crucial power sector reforms may take longer.
The immediate crisis on hand is to ensure that states adhere to existing guidelines on the payment mechanism which has recently been made mandatory by the central government. In a bid to secure dues of the power generating companies from the distribution companies (Discoms), ministry of power has released a circular directing distribution to open letter of credit (LoC) for a shorter duration of at least 1 week to 15 days. At the end of May 2019, overdue on account of payment delay from distribution companies stand at Rs 26,708 crore and outstanding amount during the start of the same month stood at Rs 40,322 crore.
The other crisis is the move by the newly elected Andhra Pradesh state government to renegotiate power purchase agreements (PPA) which could risk renewable power projects of about 5,200 MW worth Rs 21,000 crore. “Any prolonged delay would put about 50 percent of capacity (2.6 GW with Rs 10,600 crore of debt) at immediate risk of default in debt servicing as these projects would have no other liquidity support apart from project-level liquidity reserves typically about six months of debt servicing,” said Ankit Hakhu, Associate Director, CRISIL Ratings. Even though the central government has written a strong letter dissuading the state from setting a bad precedent, those invested in Andhra Pradesh are planning to move court.
The much-delayed tariff policy, which has been circulated for inter-ministerial comments, will get delayed further if the uncertainty continues. The tariff policy which is implemented at the beginning of the financial year every three years is already delayed by over four months. The policy aims to make distribution companies accountable by penalising them for any issue in quality power supply for 24 hours, overloading of supply losses on consumers via a hike in electricity charges amongst other reforms.
In the long term, the government will have to ensure states reduce financial and technical losses under UDAY and ultimately convince states to come onboard for separation of carriage and content. The road ahead is challenging enough, and the leadership flux will add to concerns.