NTPC lists loss-making SEBs as risk factor

NTPC is also worried about various state government’s policy to give free power to appease voters. ‘‘There have been recent instances of state governments promising free power to farmers. Such policies by state governments would adversely affect the financial health of the SEBs, which in turn would affect their ability to make payments,’’ NTPC officials said.

The financial performance of SEBs has deteriorated significantly over the last decade. The estimated commercial losses of the SEBs in fiscal 2002 (excluding subsidies) were approximately Rs 33,000 crore. Besides, NTPC said one-time measures to improve the finances of the SEBs need not assure funds flowing into NTPC’s coffers.

These measures included the issuance of Rs 16,410.7 crore in bonds to NTPC to securitise the receivables for past due amounts from the SEBs.

The bonds bear tax-free interest of 8.5 pc per annum and mature in various stages, starting from October 1, 2006 until April 1, 2016 to 15 years from the date of issue. In addition, the tripartite agreements have improved the situation by requiring the SEBs to establish issuance of letters of credit (lc) to cover current payments.

‘‘However, we cannot assure that the SEBs will always be required to, or be able to, establish LCs to secure their payments. A change in government policies could lead to a change in the requirement to establish LCs,’’ NTPC said. Any change adversely affecting NTPC’s ability to recover its dues from the SEBs would also affect its financial position, it added.

The unbundling of the SEBs pursuant to the Electricity Act could have an adverse impact on its revenues. Under the Electricity Act, the SEBs are required to unbundle their operations into separate generation, transmission and distribution companies.

Following unbundling, PPAs, which are currently with the SEBs, will be with one or more of the unbundled entities.