Offering a breather to Anil Ambani-owned BSES Rajdhani Power Ltd (BRPL), the Asian Development Bank’s Private Sector Operations Department (PSOD) plans to extend a loan of $80 million to the company, one of the distribution utilities for the Indian capital.
The loan will be used to fund BRPL’s capital investments, which had been impacted after domestic financial institutions expressed their reluctance to increase exposure to the utility.
“It is not a sovereign restructuring but private sector financing to be done by PSOD. It will provide a breather to BSES, which has been unable to raise funds elsewhere,” said a person aware of the development requesting anonymity.
The offer comes in the backdrop of losses and under-recoveries eroding the balance sheet of distribution utilities, resulting in their net worth turning negative.
At the same time, the electricity regulator has turned down a proposal to increase tariffs even as the Aam Aadmi Party (AAP), which has formed the new state government in Delhi, has promised to halve tariffs.
A BSES spokesperson declined comment. The ADB’s India Resident Mission, in an emailed response, confirmed the development and said, “ADB Private Sector Operations Department envisages a loan of USD 80 million in relation to future capital expenditure to BRPL only.”
“The loan has been approved by ADB board,” the email added.
BSES operates in an area of 950 sq. km with a customer base of 3.3 million through BRPL and BSES Yamuna Power Ltd (BYPL). Of these BRPL distributes power to 1.82 million customers spread over 750 sq. km in south and west Delhi.
PSOD provides assistance for projects without sovereign guarantees. These projects can be private entities, state-owned enterprises and municipalities. It also provides commercial co-financing with focus on infrastructure and capital markets or financial sectors.
According to ADB’s loan report and recommendation, “The proposed ADB assistance will provide much needed funding to BRPL for system improvement. BRPL’s existing, mainly public sector owned lenders have limited appetite for further lending to the sector given their overall power sector exposure limits.”
Also, the loan will help in the financing of BRPL’s capital expenditure over the next two years.
“Successful implementation of the project will rehabilitate and/or augment approximately 486 distribution transformers, 266 kilometers (km) of 11 kilovolt (kV) distribution lines, and 16km of extra high voltage lines. It will add 123 new substations, 285 new distribution transformers, 221km of new 11kV distribution lines, and 21km of new extra high voltage lines as well as additional equipment to improve the automated system for billing and settlements,” the report added.
Delhi’s power purchase cost has spiked since 2009 with the distribution utilities incurring losses in power trading. It is estimated that the utilities suffered a loss of Rs.900 crore in 2011-12 due to inaccuracies in demand forecasting and fall in rate of sale of power in the short-term market nationally. Delhi’s power demand is around 5,000 megawatts (MW).
According to PricewaterhouseCoopers, “Higher losses and under-recoveries have eroded the balance sheet of the Discoms; the Discoms had negative net worth in all three years from FY11 to FY13 in spite of equity infusion in BYPL and BRPL in FY12 and in TPDDL in FY13.”
TPDDL is short for Tata Power Delhi Distribution Ltd.
After becoming Delhi’s chief minister, AAP leader Arvind Kejriwal, in a major bureaucratic reshuffle, removed power secretary R.K. Verma and brought in Puneet Kumar Goel in his place.
In addition, Goel also holds the position of chairman and managing director of Delhi Power Co. Ltd and chairman of Indraprastha Power Generation Co. Ltd and Pragati Power Corp. Ltd. Kejriwal has alleged that Delhi residents have been paying twice what they should be for electricity.
ADB plans to maintain its lending levels to India at around $2 billion annually over the next three years. Takehiko Nakao, president of the bank at the time of ADB’s board of governors meeting in May, said though equity investment is an option, the risks need to be assessed before taking a decision.
In its report titled Energy Outlook for Asia and the Pacific released in October, ADB said that India’s energy sector will need $2.3 trillion in investments by 2035, accounting for the maximum investment requirement in South Asia.
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