Discom losses down 38% in FY20; may have risen in FY21

Discom losses had declined in FY17 and FY18 (see chart) thanks to the UDAY scheme launched in November 2015, as governments of 16 states have taken over around Rs 2.32 lakh crore debt of their discoms, resulting in lowering of the interest rates on these loans to 7-8.5% from around 11-12% earlier.

Losses of power distribution companies (discoms) were down 38% on year at around Rs 38,000 crore in FY20, Union power minister RK Singh said on Friday. The losses had surged 83% annually to Rs 61,360 crore in FY19, mainly due to delayed subsidy disbursal by state governments, inefficient billing and tariff collection and inadequate tariff hikes. The announcement was made by the minister while releasing the “Integrated Ratings for State-owned Power Distribution Utilities” for FY20.

The aggregate technical and commercial (AT&C) losses — an indicator of pilferage —improved to 21.2% in FY20 from 21.9% in FY19.

Analysts expect the losses to have risen again in FY21, owing to the pandemic disrupting the reform process that induced a certain discipline among these entities.

As many as 25 out of the 41 state-run discoms had filed their tariff revision petitions in for FY20, which, sector experts believe have contributed towards reduction in losses. Tariff order for FY20 was issued in a timely manner for discoms including the ones in Haryana, Uttarakhand, Gujarat, Maharashtra, and Karnataka.Only 13 discoms had filed their tariff petitions on time in FY19.

Discom losses had declined in FY17 and FY18 (see chart) thanks to the UDAY scheme launched in November 2015, as governments of 16 states have taken over around Rs 2.32 lakh crore debt of their discoms, resulting in lowering of the interest rates on these loans to 7-8.5% from around 11-12% earlier.

“As part of the UDAY MoU, states were expected to move toward cost reflective tariff, and this tariff rationalisation must have helped in narrowing financial losses,” Debasish Mishra, leader of energy, resources and industrial products at Deloitte India told FE. However, Mishra cautioned that “losses will rise significantly in FY21 as discoms revenue will likely drop by 12% to 15% as demand from high-paying industrial and commercial consumer segments were disrupted amid the lockdowns to contain the coronavirus”.

Industrial and consumer segments traditionally contribute more than 70% of discoms’ revenue, but use about 50% of the overall electricity supplied. On top of that, it was difficult for discoms to continue meter reading exercises and collect payments from consumers amid the lockdown, which will likely widen the gap between their cost of supply and revenue realised (ACS-ARR gap). The finances of the discoms would have been worse in FY21, had the Centre not announced the Rs 1.25-lakh-crore loan package to clear the dues of power generators.

According to the FY20 discom rating list released by the government, discoms in Gujarat, Haryana, Punjab and Maharashtra were ranked among the best with A or A+ rating, while discoms in Tamil Nadu, Rajasthan, Telangana, Assam, Uttar Pradesh and Madhya Pradesh got the lowest rankings of C and C+. State-run Power Finance Corporation (PFC) is the nodal agency for conducting the ranking exercise every year. To be sure, the rankings do not reflect only the financial performance of the discoms, but also takes into consideration factors, including power purchase costs, payment cycle to generators, regulatory environment and levels of subsidy support from their respective state governments.

Singh said he will write to the chief ministers of the states congratulating for their discoms receiving A and A+ ratings. The minister will also write to the laggard states with C and C+ rankings, warning them that it will be difficult for their discoms to raise funds and receive loans if they do not improve, or come up with a convincing program for loss reduction. “The discom ratings will impact the rate of interest at which it gets loans, and will determine how much a lender can expose itself to these entities,” Ravinder Singh Dhillon, CMD of PFC, said.