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Discoms may be turning a corner as losses dip in FY20

This paring of losses by the discoms assumes significance as they have been the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.Premium
This paring of losses by the discoms assumes significance as they have been the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.

  • The discoms are located in Andhra Pradesh, Gujarat, Karnataka, Tamil Nadu, Uttar Pradesh, West Bengal, Madhya Pradesh, and Manipur

NEW DELHI : India’s state-owned electricity distribution companies (discoms) seem to be turning a corner, with 15 discoms of Andhra Pradesh, Gujarat, Tamil Nadu, Karnataka, Uttar Pradesh, West Bengal, Manipur, and Madhya Pradesh reducing their losses by more than 10% in 2019-20.

According to the Ninth Annual Integrated Rating for State Power Distribution Utilities of 41 discoms spread across 22 states released on Friday, “Fifteen utilities have been able to achieve more than 10% reduction in AT&C (aggregate technical and commercial) loss parameter."

“Average AT&C loss level of rated discoms has improved to 21.16% in FY20 compared with 21.85% in FY19," the ratings report said.

This assumes significance as discoms have been the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.

However, experts believe the financial health of discoms has deteriorated in 2020-21 during the coronavirus pandemic, as electricity demand load has shifted to homes, resulting in lower realizations.

This comes against the backdrop of the Cabinet Committee on Economic Affairs last month approving the marquee 3.03 trillion power discom reform scheme, wherein the Centre’ share will be 97,631 crore. The funds will be released to discoms subject to them meeting reform-related milestones.

The ambitious scheme aims to bring down India’s average aggregate technical and commercial loss from the present level of at 21.4%, to to 12-15% and gradually narrow the deficit between the cost of electricity and the price at which it is supplied to "zero" by 2024-25.

In addition to the discom losses dropping sharply by more than a third to 38,000 crore in 2019-20 from 61,360 crore in FY19, the gap between the cost of electricity bought (ACS or average cost of supply) and supplied (ARR or average realizable revenue) has also come down to 38 paise per unit in FY20 from 42 paise in FY19.

“The average cost coverage has improved to 0.87x during the ninth rating exercise as compared to 0.86x in the eighth rating exercise," according to the ratings report.

“Overall, 16 power distribution entities (out of a total of 41) have shown improvement in their cost coverage ratios. Out of these, 6 discoms have shown improvement of more than 10% in their cost coverage ratio," the report added.

The annual exercise for state power discoms is aimed at helping banks and financial institutions assess risk while lending to the distribution utilities. The discoms dues to generation companies (gencos) by end May was to the tune of 70,153 crore.

“Sixteen discoms have positive Debt to Net Worth ratio (D:E), of which ten have D:E of less than 2.0x indicating sound support from the state governments," the report said.

Also, India’s electricity demand is picking up after the dip during the second wave of the coronavirus pandemic, with the country’s peak power demand crossing 200-gigawatt (GW) mark.

“In terms of regulatory environment, tariff order for FY21 has been issued for thirty-six discoms, while the same has not been issued for five discoms," the report said and added, “In terms of availability of audited accounts, 35 discoms have submitted audited annual accounts, while six discoms have submitted provisional accounts."

These rankings come at time when the Union cabinet may shortly consider the Electricity (Amendment) Bill, 2021, that aims to de-license power supply, allowing multiple distributors in the same area and giving consumers the option to switch power suppliers as reported by Mint on Friday. According to the Lok Sabha bulletin, the bill is in the tentative list of government’s legislative and financial business that is expected to be taken up during the monsoon session of Parliament that begins on Monday.

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