Power ministry says discoms’ projected ₹90,000 cr loss 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.

An ICRA spokesperson did not immediately respond to Mint’s query.

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 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 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 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.