Rs 90K cr package to provide only temporary relief to discoms: Ind-Ra

The government's Rs 90,000 crore package will give provide temporary relief to power distribution companies and not long-term stability, said India Ratings and Research (Ind-Ra) on Tuesday.

Finance Nirmala Sitharaman earlier this month announced Rs 90,000 crore liquidity infusion for discoms, saying that they owe Rs 94,000 crore to power generation companies.

"India Ratings and Research (Ind-Ra) believes that the bailout package of Rs 900 billion would only provide temporary relief to power distribution companies (discoms)," Ind-Ra said in a statement.

The loans will be provided to discoms against guarantees by state governments and will be used to clear their liabilities towards central public sector enterprise generating and transmission companies (gencos/transcos), independent power producers and renewable energy gencos.

However, this benefit has not been extended to discoms for payables towards state gencos.

Most of the states and their discoms while joining the Ujwal DISCOM Assurance Yojana (UDAY) scheme launched in 2015 had agreed to achieve a number of milestones relating to aggregate technical and commercial (AT&C) losses, elimination of ACS-ARR gap (the difference between average cost of supply and average revenue realisation), distribution transformer/feeder metering etc.

However, these milestones have mostly remained unachieved. As a result, despite the transfer of a major portion of debt from the books of discoms to state governments, the finances of several discoms have remained in reds and weak, even prior to COVID-19 related lockdown.

The lockdown has only aggravated the stress of discoms.

Therefore, Ind-Ra believes the infusion of Rs 900 billion (Rs 90000 crore) would not provide any long-term stability to their finances, so long as the legacy issues relating to operations such as low billing and collection efficiency, high AT&C losses, delayed receipt of subsidy and high receivables are not methodically addressed.

Although some states such as Delhi, Gujarat, Andhra Pradesh have maintained their AT&C (aggregate technical and commercial) losses to the UDAY target of 15 per cent or below, the majority of the states especially large power-consuming states namely Madhya Pradesh, Karnataka, Rajasthan, Uttar Pradesh, Maharashtra are still way away for the aforesaid target, it said.

Due to the nation-wide lockdown, the revenue collection of discoms from the industry and commercial segments has nearly dried-up.

Although the supply to households continues, revenue collection was on the lower side. Collectively, these revenues were not enough to even absorb fixed costs fully. This meant further net losses for discoms. As the lockdown has also adversely affected states' finances, even most state governments would find it difficult to provide the necessary support to their discoms, it added.

According to an Ind-Ra study, 21 major states lost Rs 971 billion (Rs 97,100 crore) in April 2020 alone due to the lockdown.

Although the Centre has relaxed the borrowing limit of states under the FRBM Act to give some headroom to states, it will not be enough, given the fallout of COVID-19 pandemic, it said.