As defaults mount, power firms warn of blackouts

Source :Live Mint:Utpal Bhaskar,: Fri, Nov 18 2011. 1:00 AM 

In what may lead to blackouts across the country, the power distribution companies of Tamil Nadu, Jharkhand, Assam, Punjab, Madhya Pradesh and Delhi, among others, are defaulting on payments to public sector electricity utilities.


These utilities are now threatening to pull the plug. Under the existing rules, they are allowed to “regulate” or discontinue power supply if dues haven’t been paid for 60 days.


A senior executive at a central government-owned utility, requesting anonymity, warned that the situation could spiral out of control if “not defused soon”.


Money due to state-run utilities after 60 days of bill submission amounts to Rs.5,347.78 crore as of 24 October, according to government data. The public sector units (PSUs) include Power Grid Corp. of India Ltd, NHPC Ltd, Damodar Valley Corp., Tehri Hydroelectric Development Corp., SJVN Ltd, Neyveli Lignite Corp. Ltd, Tenughat Vidyut Nigam Ltd, North Eastern Electric Power Corp. Ltd, Indraprastha Power Generation Co. Ltd and Nuclear Power Corp. of India Ltd.


Of this amount, Reliance Group’s BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd alone account for Rs.1,158.32 crore.


Other distribution firms that owe money are those of Bihar, Meghalaya, Jammu and Kashmir, Arunachal Pradesh, Manipur, Jaipur Vidyut Vitran Nigam Ltd and West Bengal.


“We’re putting pressure and giving notices on regulation of power. The situation is not comfortable. This development is recent and has happened in the last few months,” said A.B.L. Srivastava, chairman and managing director of NHPC.


“The distribution companies are not paying and (this) is compounding matters for us since we’re a small company,” said R.S.T. Sai, chairman and managing director, Tehri Hydro. “We are having difficulties as our main customers Delhi, Jaipur Vidyut Vitran Nigam Ltd and Uttar Pradesh are not paying. We are trying to persuade them and will resort to giving notice shortly.”


This comes as distribution firms across India, most of which are owned by the states, are finding it difficult to raise working capital and owe a staggering Rs.1.77 trillion to banks, an indicator of the crisis unfolding in the Indian power sector.


“The discoms (distribution companies) will have to increase their financial viability. The Centre and states have to come up with a solution. The situation has turned critical. We have started sending notices. While things are yet to turn catastrophic, if it goes on for long it will be a disaster,” said R.N. Nayak, chairman and managing director, Power Grid.


Another senior Power Grid executive, requesting anonymity, said: “The state discoms are not paying and dues have started piling up. While a generation utility has the option of diverting power, all the transmission lines are not dedicated to one state and cater to multiple states, putting us at a disadvantage. We have given notices to the states to stop power supply.”


Many distribution utilities are saddled with losses arising from theft, inefficient transmission and billing inefficiencies. Some regularly buy expensive power to tide over short-term deficits, and many haven’t revised rates in years.


The poor financial health of these distribution firms means they cannot raise money at all, or can do so only at very high interest rates. Worse, since they are the main customers of power generation and transmission companies, there is a growing reluctance among both investors and financiers to invest in the latter.


“The discoms will have to pay. Their financial obligations will have to be met,” said India’s power secretary P. Uma Shankar.


India has 73 distribution utilities, including a handful of private ones in states such as Delhi that have privatized electricity distribution.


BSES Delhi has received regulation notices from several entities, a spokesperson said in an email.


“The situation has arisen entirely because of substantial increases in power purchase costs these last few years coupled with the complete absence of a cost-reflective tariff regime at the distribution level,” the company said.


A central bank warning to banks on loans to the sector has made raising debt difficult, it said. The situation is expected to improve to some extent following new tariffs, but Delhi discoms continue to “incur an average cash loss of over Rs.1.60 for every unit of power supplied”, the company said.


“Under the circumstances, we are making every effort to convince the generating and transmission companies that being equal partners in supplying power to Delhi, they should not resort to regulation of power to BSES Delhi, as this has a direct impact on power availability in Delhi, the national capital,” BSES said.


State-owned NTPC Ltd had earlier issued notices to the two Reliance Group companies stating it would discontinue power supply last month if Rs.895 crore in dues weren’t paid. However, the issue was resolved after the two power distributors gave a written assurance to NTPC that they would unconditionally restore the letters of credit, clear outstanding dues and also undertake to pay arrears in six equal instalments before March 2012, as reported by Mint on 6 September.


The cumulative losses of the distribution utilities are around Rs.75,000 crore, and if the present trend continues, their projected losses in 2014-15 will be Rs.1.16 trillion, according to a study conducted by energy consultingcompany Mercados EMI Asia for the 13th Finance Commission.

Home Loans : Bank’s list of approved projects is helpful but you can’t trust it completely

Source :Live Mint : Devesh Chandra Srivastava:Thu, Nov 17 2011. 9:27 PM IST


All you need to do is visit your bank’s branch and ask for the list of approved projects


Recently, the largest private sector bank in India, ICICI Bank Ltd, came up with a special offer for prospective homebuyers seeking a loan from the bank.


 However, the bank put a condition that only those customers who chose a property from the bank’s database of approved projects would get the special offer.


 Like ICICI Bank, most banks maintain a list of projects they approve of.


What is the list’s significance?




Properties figuring in banks’ lists are considered trustworthy since banks do their due diligence before including one. Usually, banks approve projects that are saleable in terms of their demand in the market. Banks also look at the developer’s capacity to complete the project.
It is usually easier to get a loan for a property in one of these projects. In fact, prospective buyers can check whether a property they like is in a bank’s approved list.


How can you get the list?


All you need to do is visit your bank’s branch and ask for the list of approved projects. The bank executive will ask for your preferred location and budget. Accordingly, he will shortlist four-five names for you.


Should you trust the list?


If a particular project is in a bank’s list, it indicates the project is relatively safer to invest. But you cannot trust the list completely as banks cannot take the guarantee in case of a title dispute or delay in possession. For example, in the recent land acquisition controversy in Noida Extension, most banks were financing homebuyers without any prior knowledge of the problems over land title and clearances. Later, when the case went to the court, banks stopped lending to homebuyers. Till date, homebuyers in Noida Extension are waiting to get a loan.


What should you do?


As the bank’s approval on a project is not the final word on the authenticity of the title and clearances, you should independently verify the details of the project. While the project is under construction, ask property dealers and consultants operating in that area for more information on the project. Other details can be sought from the local development authority by filing an application under the Right to Information Act to know if the developer has a licence number to build a particular project, whether he has the title of the land and if the local authority has approved the plans of the project.