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Discom losses can spiral to Rs 50,000 crore in FY21: Icra

Discoms reported a near doubling of their financial losses in FY19 to Rs 27,000 crore, in what reflected a dramatic reversal of the trend of a secular decline in losses in FY17 and FY18, thanks to the UDAY scheme.

Discom losses can spiral to Rs 50,000 crore in FY21: Icra
Icra estimates the discom losses in FY20 to be around Rs 30,000 crore.

Lower power demand and logistical constraints in revenue collections due to the lockdown is seen to increase the financial losses of state-run power distribution companies (discoms) to Rs 50,000 crore in FY21, up 66% y-o-y, according to rating agency Icra.

Analysts at the firm noted that the losses could be even higher as, under the current circumstances, state power regulators might hike tariffs inadequately, resulting in wider differences between the cost of supply and revenue realised (ACS-ARR gap).

Icra estimates the discom losses in FY20 to be around Rs 30,000 crore. Discoms reported a near doubling of their financial losses in FY19 to Rs 27,000 crore, in what reflected a dramatic reversal of the trend of a secular decline in losses in FY17 and FY18, thanks to the UDAY scheme.

“This would further increase the subsidy dependence for the discoms,” the rating agency said, warning that there can also be a rise in ‘regulatory assets’— a jargon for recoverable discom expenses which regulators acknowledge as pass-through costs, but are not immediately built into tariffs. At FY19-end, the value of regulatory assets across the country was a whopping Rs 1.35 lakh crore.

Since most of the revenue of the discoms come from industrial and commercial customers, lower usage by these categories mean additional pressure on these already distressed entities. Tariffs on domestic consumers is on an average around 40% lower than that for industrial users of power, as they are cross-subsidised by industrial and commercial users.

Financially weak discoms trigger a domino effect in the sector, as they become unable to pay power producers on time, who in turn fail to service their debts. Overdues—payment default of 60 days or more—from discoms to power producers were already at Rs 80,387 crore at February-end.

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