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Power ministry says discoms' projected 90,000 cr loss grossly inflated

The speculations trace their origins to a report published by ICRA on the Power Distribution Sector in March, 2021, the union power ministry said. (Reuters )Premium
The speculations trace their origins to a report published by ICRA on the Power Distribution Sector in March, 2021, the union power ministry said. (Reuters )

Discoms are traditionally the weakest link in the electricity value chain, plagued by low collections, rise in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments 

New Delhi: The union power ministry on Wednesday refuted reports about electricity distribution companies (discoms) recording losses of 90,000 crore in the financial year 2020-21, terming it ‘grossly inflated.’

“Recently, some media reports have published speculations regarding DISCOMs achieving loss levels of 90,000 crore in FY2021. These speculations trace their origins to a report published by ICRA on the Power Distribution Sector in March, 2021," the union power ministry said in a statement.

This comes in the backdrop of discoms traditionally being the weakest link in the electricity value chain, plagued by low collections, rise in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.

“While this report indicates Profit After Tax (PAT) figures of negative 50,000 crore in FY19 (which is consistent with the PFC’s Annual Utilities report of FY 2019), the projections of PAT figures of FY 2020 are shown to increase to the tune of negative 60,000 crores. This report further builds on these losses and projects total DISCOM losses of ~ 90,000 crore in FY2021. One of the reasons ascribed to this speculation is the decline in electricity volume sales in the year 2020-21 due to the COVID induced lockdown," the statement added.

While the demand load shifted to homes during the first wave of the coronavirus pandemic, the demand has since recovered, with India’s peak power demand recording an all time high of 200.57 gigawatt (GW) on 7 July. India has an installed power generation capacity of 383.373GW.

“This report also mentions 30,000 crore increase in DISCOM dues to its creditors from March, 2020 to December, 2020, and perhaps assumes this increase in payables, which is essentially a cash flow problem, to directly reflect into additional DISCOM losses in FY 2021 over the projections of FY2020," the statement said.

“The facts are quite to the contrary. It is discernible that actual PAT figure for FY2020 is almost half of the negative 60,000 crores projected by ICRA for FY2020, thereby indicating that the ICRA estimations of even FY2020 are significantly flawed. ICRA has further built up the losses for FY 2021 on their erroneously estimated figures of FY 2020 by adding another 30,000 crores due to COVID for reasons mentioned above. No details have been given in the report to cover this increase," the statement added.

This comes in the backdrop of a narrowing gap between the cost of electricity bought (average cost of supply, or ACS) and supplied (average realizable revenue, or ARR) to 28 paise per unit in 2019-20 leading to a fall in discom losses by more than a third to 38,000 crore from 61,360 crore in FY19, according to government data.

“As a result of the above erroneous projections by ICRA, the loss figures of 90,000 crore for FY2021 seem to be grossly inflated," the statement said.

“Our report on discoms dated March 2021 estimates net losses at PBT/PAT levels for FY2020 at about Rs. 56,000 crore. This is based on the tariff revisions approved and the continued high distribution losses for the discoms. It is to be noted that the tariff revisions have remained muted over the past 3 years and the distribution losses for discoms remain higher than the regulatory approved levels in key states,"ICRA said in a statement.

“On FY2021, our report estimates that the revenue gap for discoms would increase by Rs. 30,000 crore owing to the decline in electricity demand from the high paying commercial & industrial customers given the adverse impact of Covid-19. However, our report also states that the discoms would be able to claim such revenue loss as a basis for future revenue and tariff determination under the cost-plus tariff principles from the regulators. To the extent that such revenue losses claimed by discoms are approved by the SERCs under the true-up, the incremental revenue gap of discom would be lower than the 30,000 crore estimated by ICRA. This apart any compensation by state governments by way of additional revenue support (by way of incremental subsidy or grant for eg) would also result in lower book losses," the ICRA statement said.

“It may be noted that the report does not anywhere say that the book losses for FY2021 are estimated at Rs. 90,000 crore," the ICRA statement added.

A total of 15 state power distribution companies (discoms) in Andhra Pradesh, Gujarat, Tamil Nadu, Karnataka, Uttar Pradesh, West Bengal, Manipur and Madhya Pradesh narrowed their losses by more than 10% in 2019-20.

“The adverse performance of DISCOMs across the country already seem to have gone past the inflexion point, and are showing green shoots of turnaround," the power ministry statement added.

As part of its reform push, the government is rolling out the marquee 3.03 trillion power discom reform scheme that has a compulsory smart metering ecosystem component.

“To tide over the liquidity problems of increasing DISCOM payables to Gencos arising out of the outbreak of COVID-19 lockdowns, the Government of India has launched a Liquidity Infusion scheme under which DISCOMs are already availing benefits under the scheme tied to reforms. The Government has also incentivised the DISCOMs to transform, reform and perform by linking 0.5% of the Additional borrowings linked to power sector reforms from FY 2022 to FY 2024," the power ministry statement said.

The reforms-based result-linked power distribution sector scheme to be applicable till 2025-26 aims to reduce India’s AT&C loss to 12-15% from 21.83% in 2019-20, and gradually narrow the deficit between the cost of electricity and the price at which it is supplied to ‘zero’ by 2024-25.

“The Distribution Sector in India is termed as the most important but also the weakest link in the Power Sector value chain. However, the Sector is also witnessing tell-tale signs of improvement in performance and increase in efficiencies due to a multitude of initiatives made by the Central & State Governments and the DISCOMs themselves," the power ministry statement said.

Meanwhile, the government is pushing for Electricity (Amendment) Bill, 2021, which aims to de-license power supply, allowing multiple distributors in the same area, and giving consumers the option to switch power suppliers.

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