India moves to shore up power supplies amid lockdown

The country's power ministry has sought a three-month moratorium on payments owed to power producers, which predominantly include coal-fired stations, and payments owed to transmission firms by electricity distribution companies. This is aimed at ensuring power producers continue to supply electricity in the absence of payments.

Industrial and individual consumers have been unable to pay electricity distribution companies amid the 21-day lockdown that started on 25 March, as India intensified its efforts to contain its coronavirus outbreak.

This has affected the liquidity position of electricity distributors, affecting their ability to pay the generating and transmission companies, said power minister RK Singh, adding that directions have been given to federal regulator the Central Electricity Regulatory Commission to enforce the decision.

Most distribution companies in India are state owned and are the weakest link in the electricity supply chain. They had more than 868bn rupees ($11.5bn) outstanding payments as of January this year, given their inability to raise power tariffs to cover their costs.

India has renewed efforts to revive electricity distributors amid broader plans to boost the power sector. This includes a review of the existing debt reduction programme for the distributors and plans to set up an alternate investment fund.

The latest move by the power ministry amid the coronavirus outbreak might give temporary relief to the distributors but will eventually add to their debts. The moratorium will potentially weigh on the financial position of the power stations, which would also have to pay back monthly instalments to lenders, as well as having to make advance payments to state-controlled producer Coal India (CIL) and state-owned Indian Railways for coal supplies.

The power ministry said it is also talking to coal and railways ministries to ensure smooth coal supplies to power producers. About 70pc of India's electricity generation comes from coal-fired power plants. The ministry's involvement comes despite stocks at CIL and power stations at record levels, weighing on coal producers' plans to boost output further.

Several power plants have been operating at lower capacity since the coronavirus outbreak, while some units are facing temporary closures because of a drop in demand, market participants said. National coal consumption is poised to weaken further after dropping by 5.7pc compared with a year earlier over 1-18 March, according to the latest data from the Central Electricity Authority.

Weaker coal use may weigh more on the seaborne coal trade as the lockdown is already shaking the coal market with string of force majeure declarations by some ports, consumers and trading firms over the past few days.

By Saurabh Chaturvedi