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The Aam Aadmi Party (AAP) party-led Delhi government has asked the state’s electricity regulator to suspend the distribution licences of the Anil Ambani -controlled BSES Rajdhani Power Ltd (BRPL) and BSES Yamuna Power Ltd (BYPL), upping the stakes in a fight over power tariffs and the functioning of the two distribution companies. The government has offered to take over the functioning of the distribution utilities and also suggested the appointment of its officials as the administrative officers for the utilities.

In a letter to P.D. Sudhakar, chairman of the Delhi Electricity Regulatory Commission (DERC), on Monday, Delhi’s power secretary Puneet Goel wrote that the BSES distribution companies (discoms) have said that inadequate funds is the reason for their inability to pay state-owned NTPC Ltd for electricity, increasing the prospect of a blackout, and that this “calls for revocation of their licenses by DERC under section 19 (d) of the Electricity Act, 2003”.

India’s largest power generation utility NTPC has decided to suspend electricity supply to the discoms over unpaid dues after 10 February. According to the law, utilities are allowed to “regulate” or discontinue power supply if dues haven’t been paid. NTPC currently supplies 3,176 megawatts (MW) of electricity to Delhi’s discoms. Of this, 2,072MW is supplied to the BSES discoms. The rest goes to Tata Power Delhi Distribution Ltd (TPDDL), Military Engineering Services (for Delhi Cantonment) and New Delhi Municipal Corporation.

Mint has seen a copy of the letter titled “Alleged paucity of funds with the discoms and their likely failure to supply power to consumers for long hours”, in which Goel said: “In case, these discoms continue with their stand, DERC may not have an alternative but to suspend their licenses immediately, as a first step, under para 13 of the terms and conditions of their distribution licences.”

According to the power purchase agreement signed between NTPC and the discoms, bills have to be paid by the last working day of the calendar month. The BSES discoms are required to replenish the letters of credits (LCs) within seven days, and NTPC says BYPL has only provided letters for INR.84 crore as against a requirement of INR.168.29 crore.

The prospect of a blackout isn’t new to the two discoms that have been sparring with the new AAP government over tariffs. The AAP, which promised a 50 Percent cut in tariffs if it came to power, wants the discoms to reduce rates and has commissioned an audit of their operations to assess the real cost of power. It has also commissioned an audit of the Tata Power discom.

In 2013, too, NTPC had issued notices to BRPL and BYPL saying it would discontinue power supply if dues weren’t paid. The issue was resolved after the two power distributors assured NTPC that they would unconditionally restore the letters of credit, clear outstanding dues and pay arrears.

“Extensive blackouts in the capital city of the country due to financial difficulties of these two discoms is not acceptable. In the event suspension of licences becomes necessary in the near future, suitable officers will have to be appointed as administrative officers of BSES discoms. It is requested that officers who could be appointed as administrative officers of discoms may be immediately identified in consultation with the chief secretary, so that if need be, immediate action is possible and the consumers and government of Delhi are not caught napping,” Goel went on to add in the letter.

NTPC has refused to budge from its stand. A senior NTPC executive who spoke on condition of anonymity said: “We have invoked the LCs. This is not a hoax call. We have the buyers if they don’t make the payments. Tata Power Delhi Distribution Ltd, Military Engineering Services (for Delhi Cantonment) and New Delhi Municipal Corporation have the first right of refusal to the power once we regulate it. If they refuse it, then it will be offered to the northern region states and after them to all the states connected to the northern region.”

A second NTPC executive, who also didn’t want to be identified, said, “We want the money. They have to pay. If they don’t, there are a lot of takers of this power which is very cheap as compared to other sources. We are hopeful that the discoms will pay within the stipulated time.”

Delhi’s power purchase cost has spiked since 2009 with the distribution utilities incurring losses in power trading. It is estimated that the utilities suffered a loss of INR 900 crore in 2011-12 due to inaccuracies in demand forecasting and a fall in rate of sale of power in the short-term market nationally. Delhi’s power demand is around 5,000MW. While Goel declined to comment, Sudhakar said: “We will take appropriate action on the communication. We will have to go through it.”

A BSES spokesperson, in an email, said: “We are not aware of any such developments. This matter has not been discussed at the board meeting since the discoms are a 51/49 joint venture with the Delhi government. We are deeply committed to the consumers of Delhi, and have served them for over 10 years and reduced power losses to the tune of nearly INR 35,000 crores, which have accrued as savings to the Delhi government.”

The Delhi government has clarified that the subsidy amount due to discoms from it shall be adjusted against the receivables of government-owned Delhi Transco Ltd, the power transmission company, and the generation utilities, Indraprastha Power Generation Co. Ltd and Pragati Power Corporation Ltd.

“BSES has its dues towards NTPC. BSES has to pay to NTPC. BSES draws money from electricity bills from the people of Delhi but why does it not pay them (NTPC). NTPC never threatened the government before,” said Sanjay Singh, a national executive member of the AAP. The Union government has refused to intervene in the standoff. A top Union power ministry official, requesting anonymity, said: “This is between the discoms and the Delhi government. They will have to find some solution. They should resolve the issue.”

Power minister Jyotiraditya Scindia said: “The agreement between NTPC and the discoms has to be adhered to. The decision-making power lies with the regulator.” Meanwhile, the two BSES discoms have been trying to raise working capital from state-owned Power Finance Corp. Ltd (PFC) and Rural Electrification Corp. Ltd REC). While PFC and REC together account for around 60 Percent of the money loaned to power companies in India, a loan to the discoms looks unlikely at the moment.

A top PFC executive, who did not want to be identified, said: “There are several options considered by the Delhi government. Availing a loan is one of the options. There have been some informal talks, but no formal proposal has come to us. “A loan to the discoms looks unlikely,” said a top REC executive, who also didn’t want to be identified.

According to PricewaterhouseCoopers, “higher losses and under-recoveries have eroded the balance sheet of the discoms; the discoms had negative net worth in all three years from FY11 (fiscal year 2011) to FY13 in spite of equity infusion in BYPL and BRPL in FY12 and in TPDDL in FY13”. These distribution firms have a consumer base of 4.231 million customers.

“While the regulator, the discom and the Delhi government have called, we can’t lend against regulatory assets in the absence of a guarantee by the Delhi government. These discussions have taken place earlier, but nothing has come out of them,” the REC executive added. Delhi’s chief minister Arvind Kejriwal has alleged that Delhi residents have been paying twice what they should be paying for electricity. Similar allegations have been levelled by the Bharatiya Janata Party.

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