The crumbling finances of PSPCL

Bhupinder Singh and Malkit Singh
Power sector experts

THE Punjab State Power Corporation Limited (PSPCL) is passing through its worst financial crisis and the outstanding debt of the utility has nearly doubled from that at the time of its incorporation in 2010.The National Electricity Policy, 2006, mandates that the successor companies formed after unbundling of state electricity boards were not to be burdened with past debt liabilities. Following these guidelines, most states gave clean balance sheets to their respective unbundled utilities, but Punjab failed to fulfill its obligation and passed on the outstanding loans of around Rs 16,000 crore to the PSPCL at the time of unbundling. 

The Centre has now, in 2016, notified the Ujjawal Discom Assurance Yojna (UDAY) to achieve financial turnaround of the distribution companies by ensuring that they should be able to recover the cost of supply incurred by them. Under this scheme, the states are to first take over 75 per cent of their debt and fund their future losses up to 2020-21. The distribution companies are, on their part, required to mainly curb theft of power by bringing down losses below 15 per cent by 2019-20. Haryana and Uttar Pradesh have already started taking over outstanding debt of their distribution companies. But Punjab has committed to take over PSPCL's debt only in 2019-20. 

Reasons for poor finances  

The PSPCL earned profits from 2012-15 despite past debt liability, but it again suffered losses in the next two fiscal years. Despite a tariff hike of around 9 per cent, the utility is expected to end up with a loss of around Rs 1,000 crore during the current year. 

Why did a profit-earning company turn into a loss making one? The prime reasons for financial losses of the utility are: 

• Inadequate recovery of cost of supply due to the disallowances by PSERC in the successive tariff orders. 
• Rising dependency on power purchase to meet its energy requirements. 
• Higher debt servicing costs because of an increase in outstanding loans. 

The percentage of power purchase to the total energy has risen from 36 per cent in 2010-11 to 77 per cent during 2017-18. This has happened mainly due to a decrease in own thermal generation, which is barely 5 per cent now. As a result, the power purchase bill has risen more than three times during the same period. The financial condition of the PSPCL took a turn for the worse after the commissioning of private sector thermal plants in the state during last two years since it resulted in the payment of fixed charges even for power not utilised. The decrease in own thermal generation has also resulted in non-utilisation of cheap and good quality coal from state-owned coal mines which could have saved Rs 400 crore annually.

The other major concern is theft of power which drains PSPCL’s finances and puts an extra burden on honest consumers as well. Although the PSPCL has been successful in curbing theft of power, there are some high theft divisions such as Patti, Bhikiwind, Ajnala, Amritsar (suburban and west), Rampura Phul, Jalalabad, Patran etc where losses are still in the range of 30-40 per cent. The shifting of meters could not be executed in these areas due to stiff resistance from consumers who seemed to enjoy political patronage. 

The losses of the PSPCL are amongst the lowest in the country and can be further reduced by completing the pillar box scheme in balance high theft areas. To some extent, disallowance of genuine expenditure incurred by the PSPCL while determining the energy tariff is also the reason for the poor financial health of the utility. 

The rising subsidy bill

Punjab's subsidy bill has risen steadily from Rs 2,736 crore in 2010-11 to Rs 11,542 crore in 2017-18, which includes subsidy for the non-agriculture category of poor consumers. The agriculture subsidy in Punjab is calculated on cross subsidised AP tariff of Rs 5.06 per unit against the actual average cost of supply of Rs 6.42 per unit. In comparison, Haryana is paying agriculture subsidy on an average cost of supply of Rs 7.25 per unit and its subsidy bill is higher in comparison to that of Punjab. Although subsidy is to be paid in advance, payment to the tune of Rs 5,100 crore is still pending for the current year. The delayed payment of subsidy during the last three years has put a severe strain on the finances of the PSPCL since it has to resort to short-term borrowings for meeting its expenses.

It is of paramount importance to improve the financial health of the PSPCL so that it can continue to play its important role in Punjab's economic development.

The PSPCL should take bold policy initiatives to make electricity cheaper in Punjab by enhancing its own generation in the coal and renewable energy sectors by making optimum use of its assets. Also, the losses should be further reduced by installing pillar boxes in remaining high theft areas and selling surplus power to reduce the burden of fixed charges, besides undertaking other efficiency measures.