Outlook negative for power discoms due to falling revenues: ICRA

The outlook for electricity distribution segment remains negative with continued weakness in financial position of most state-owned discoms, according to a report by ICRA

The outlook for electricity distribution segment remains negative with continued weakness in financial position of most state-owned distribution utilities (discoms), according to a report by ICRA.

This is due to a mix of issues including a high level of technical and commercial losses, inadequate tariffs in relation to their cost of supply and delays in receiving shortly from state governments.

The discom finances have been adversely impacted by a sharp decline in revenues from commercial and industrial customers in Q1 FY21 because of lockdown restrictions. Besides, lack of tariff revisions is estimated to widen the revenue gap for discoms at all-India level by Rs 30,000 crore in FY21.

While discoms will be able to claim the revenue gap from the decline in volume sales under cost-plus tariff principles at the time of true-up, timely realisation remains to be seen in subsequent tariff orders, said the report.

Notwithstanding an expected demand recovery in FY22 and likelihood of upward tariff revisions to liquidate large regulatory asset position, discom losses are likely to remain significant at more than Rs 75,000 crore.

This is due to inadequate tariffs, high distribution losses and additional interest cost on loans availed under the liquidity support scheme.

The large accumulated losses along with revenue gap in FY21 led to a build-up in dues from discoms to power generation companies during FY21 which increased from Rs 99,000 crore as on March 2020 to about Rs 1.27 lakh crore as of December 2020.

Under the Atmanirbhar Bharat package, the government has announced liquidity support of Rs 90,000 crore (now increased to Rs 1.25 lakh crore) for state power discoms in the form of loans against receivables from Power Finance Corporation and Rural Electrification Corporation.