India asks power producers to demand weekly payments to manage expensive coal imports

A scorching heatwave and years of lowest fuel stocks at power stations have forced India to reverse policies aimed at reducing coal imports. The decision could put even more pressure on the power distribution company, which is deeply in debt and already owes manufacturers billions of dollars.

Power distribution companies must ensure payment of at least 15% of interim bills to power producers within a week, according to a May 26 letter addressed to power production companies and state and federal energy officials.

If the electricity distribution company fails to pay, the electricity producer can sell 15% of its production to the electricity exchange, the letter reads.

The minister invoked an emergency clause in the federal electricity law to enforce changes to the payment mechanism, according to the letter.

Power stations, most of which have long-term agreements with distribution companies to sell electricity at a flat rate, are allowed to charge higher fees due to imports.

India’s electricity tariffs, set by individual states, are among the lowest in the world, as state-run distribution companies have absorbed higher input costs to keep tariffs stable. This has left many of these companies deeply in debt.

Regularly widening corporate balance sheets result in late payments to power producers, often hurting cash flow and continuing investment in the power sector.

If the distribution company paid for the time, it would benefit companies like Adani Power, Tata Power, Reliance Power, Jindal Steel and Power, Torrent Power and Sembcorp.

On Wednesday, India said it was working on a plan to liquidate the financial debt of a power distribution company, adding that the proposal would see the financial debt paid in installments.

Previous attempts by various governments to reduce the debt levels of distribution companies have had little success.

Serena Hoyles

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