Rating agency Icra has estimated a subsidy dependence of Rs 850 billion amid low tariff hikes allowed for discoms in 2018-19, and expects improvement in thermal plants capacity utilisation or PLF in near to medium term.
"The domestic electricity demand growth is likely to remain at about 5 to 6 per cent in near to medium term, supported by thrust towards rural electrification, expected recovery in industrial/ commercial segment along with some improvement in the paying capacity of the state-owned distribution utilities," Girishkumar Kadam, Sector Head & Vice President, Icra Ratings, said in a statement.
However, Kadam said the augmentation of domestic coal supply to meet such increase in demand for the IPPs/ Gencos remains crucial, and as a result, any delay in ramping up of coal supplies from domestic sources will lead to increase in the dependence on coal imports as seen during FY2018.
The all India electricity demand growth slowed down to 3.1 per cent on a year-on-year basis in the first two months of FY2019 against the growth of 7.5 per cent reported in Q4 FY2018 and lower than the growth of 5.9 per cent witnessed in the first two months of FY2018, it said.
However, May-2018 witnessed the highest ever monthly electricity demand at all India level. With respect to the distribution segment, the state electricity regulatory commissions (SERCs) in 21 out of the 29 states have issued tariff orders for FY2019 so far, reflecting reasonable progress in the issuance of tariff orders for the year, it added.
According to Icra, the median tariff hike based on the tariff orders issued in the 21 states remained low at 2 per cent, with the SERCs in seven states not approving any tariff hike and the downward revision in tariff in two states.
"The tariff hikes approved in many of the states remained lower than the hikes stipulated in the UDAY MoUs, signed by these states. The only exception being the SERC in Jharkhand, which approved a steep tariff hike to cover the entire revenue gap.
"This in turn has resulted in higher subsidy dependence for distribution companies (discoms) in few states. The overall subsidy dependence for discoms at all India level is estimated to increase in the range of 7 to 8 per cent on y-o-y basis to Rs 850 billion (Rs 85,000 crore) in FY2019," said Vikram V, Associate Head & Assistant Vice President, Icra Ratings.
In another key development, the draft amendments to the National Tariff Policy propose significant reforms in the electricity distribution business, including emphasis on quality and reliability of supply by the discoms, stricter operating norms, adoption of direct benefit transfer for subsidy payment and moving the consumers from post-paid to pre-paid basis, it said.
While these are positive from the consumer perspective, the implementation of these proposals could face significant challenges and higher funding support requirement for discoms from the respective state governments, Icra added.