Discoms' losses shrink but debt remains high and liquidity crunch widens

Latest PFC report on Discoms' Health in 2021-22 shows progress on AT&C and payment disbursals

Power distribution companies (discoms) continue to face high debt levels, despite a reduction in their booked losses. Of these companies, the financially-beleaguered state-owned discoms are facing a liquidity crunch and reduced capital expenditure by their state departments, revealed the latest Annual Integrated Ranking and Rating report by Power Finance Corporation (PFC).

For the reported year 2021-22, discoms' current liabilities exceeded their overall current assets, and amounted to nearly twice the value of their current liquid assets. The sector’s liquidity gap stands at Rs 3.03 trillion, said the report, adding that the combined liquid assets of discoms are adequate to cover only their generation, transmission, and operational liabilities.

“Including their non-liquid assets, their lender obligations can be covered too. However, they have even more liabilities, which cannot be covered without liquidating non-current assets or marshalling external support,” the report said.

Aggregate Technical and Commercial (AT&C) or operational losses have improved to 16.5 per cent in FY22 from 21.5 per cent in FY21. The net loss of the discoms reduced slightly to Rs 28,700 crore in FY22 from Rs 36,000 crore in FY20, said the report.

As power demand increases every year, the discoms face additional pressure to improve their operations. This has led to a 24 per cent increase in the sectoral debt. The report said, the total sectoral debt rose stood at Rs 6.20 trillion during FY20-FY22. According to the report, the Debt Service Coverage Ratio (DSCR) turned positive in FY22, improving to 0.43 from -0.07 in 2020.

But at the same time, the capital expenditure (capex) addition by the state government has reduced, indicating a high dependence on debt for the discoms working capital needs. The report stated, capex addition declined to Rs 48,000 crore in FY22 from to Rs 59,000 crore in FY21.

The report noted it to be a "concerning trend" as the sector needs to actively focus on upgrading its billing infrastructure for long term gains. The biggest impact in capital requirement was driven by working capital requirement. Additional working capital requirement, reduced significantly Rs 19,000 crore in FY22 from Rs 55,000 crore in FY21, it said.

The reduction is capex and working capital comes at a time when the discoms across the country are looking at record high power demand this summer plus the stringent targets set under the new reforms scheme – RDSS. Under it, the fund disbursement for all centrally sponsored schemes would be linked with the operational and financial performance of the discoms.

The sector’s regulatory assets were stagnant over FY20-FY22 at Rs 1.6 lakh crore, said the report, adding it highlights the need for “greater state efforts to clear dues through appropriate tariff increments/capital support/efficiency measures.”