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Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector. Photo: Aniruddha Chowdhury/Mint (Aniruddha Chowdhury/Mint)
Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector. Photo: Aniruddha Chowdhury/Mint (Aniruddha Chowdhury/Mint)

States power discoms debts to hit all-time high of 4.5 trillion: Crisil

  • With power demand weak and cash losses high amid the Covid-19 pandemic, discoms would end up owing lenders a staggering 4.5 lakh crore by the end of this fiscal, or 30% more than last fiscal

NEW DELHI: In what may exacerbate the weak financials of state-owned electricity distribution companies, their debt burden is expected to hit an all-time high of 4.5 trillion this fiscal, according to a Crisil Ratings report.

Discoms’ problems have assumed alarming proportions with states struggling to pay for the electricity bought, with the world’ longest lockdown worsening the already precarious finances of power discoms due to lower realizations.

“The Centre’s recent 90,000 crore liquidity line will help state power distribution companies (discoms) settle a significant portion of their overdue bills to generating companies. However, with power demand weak and cash losses high amid the Covid-19 pandemic, discoms would end up owing lenders a staggering 4.5 lakh crore by the end of this fiscal, or 30% more than last fiscal," the report said.

This comes in the backdrop of the discoms being the the weakest link in the electricity value chain. Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector.

Seized of the issue, the union government announced a 90,000 crore loan for fund starved discoms against their receivables, as part of the 20 trillion stimulus. However, it hasn’t found many takers as the states are averse to providing state guarantees against these loans meant for the sole purpose of discharging the disoms’ liabilities.

“Today, only one in five discoms is capable of servicing debt through own cash flows and budgeted subsidies. The scenario would worsen this fiscal because of weak demand for power, which comes on the back of an already low base of last fiscal, rising costs, and losses caused by the pandemic-led lockdown," the report said.

India’s average aggregate technical and commercial (AT&C) losses are at around 21.4%. Also, the gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized) for discoms is still substantial in most states and ranges from 2.13 per unit in Andhra Pradesh to Rs0.09 in Chhattisgarh. At least ten states have electricity losses of more than 30% that is posing a huge burden on their finances.

“Some of the Centre’s recent initiatives such as reduction of discom receivables from state entities as part of loan package, the move towards cost-reflective tariffs, and privatisation are steps in the right direction. However, all these would require a clean-up of legacy debt, removal of cross-subsidies, and more importantly, enhanced commercial orientation of discoms. Those would be the key monitorables in the next reforms package expected," the report said.

India’ next generation power sector reforms proposed by the National Democratic Alliance (NDA) government may become another flash point in the Centre-state relationship. There has been a growing chorus from states including Telangana and Tamil Nadu opposing the draft Electricity Act (Amendment) Bill 2020.

The reform measures proposed by the Centre are intended to help improve the financial health of the power sector and implement the direct benefit transfer (DBT) scheme for better targeting of subsidies, promoting retail competition, payment security mechanism and introducing financial discipline. The proposed amendments have also pitched for a cost reflective tariff and setting up an Electricity Contract Enforcement Authority to enforce power purchase agreements (PPAs).

“Power demand fell a fifth on-year in April and May combined. While there are signs of a gradual recovery, all-India power demand could be lower by 2%, or ~31 billion units, this fiscal because industrial and commercial consumers – who pay 50-100% more and cross-subsidise domestic and agricultural consumers – have been the worst hit by the lockdown," the report said.

While extending the world’ severest lockdown in containment areas till June end, the Indian government has considerably eased off restrictions in other parts of the country to restart its economy. Consequently, India’s power demand that had nosedived is slowly getting to its pre-lockdown levels.

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