Estimates of discoms’ losses of Rs 90K cr for FY21 seem to be grossly inflated: Power ministry

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August 18, 2021 6:34 PM

The government has also incentivised the discoms to transform, reform and perform by linking 0.5 per cent of the additional borrowings linked to power sector reforms from 2021-22 to 2023-24, it stated.

It said that the aggregate technical and commercial (AT&C) losses came down from 23.5 per cent in 2016-17 to 21.83 per cent in 2019-20.

The Ministry of Power on Wednesday said speculations about power distribution companies (discoms) having losses of Rs 90,000 crore in 2020-21 “seem to be grossly inflated”.

Recently, some reports pointed to speculations regarding discoms achieving loss levels of Rs 90,000 crore in 2020-21, the power ministry said in a statement.

These speculations trace their origins to a report published by rating agency ICRA on the power distribution sector in March 2021, the ministry said.

While this report indicates profit after tax (PAT) figures of negative Rs 50,000 crore (loss) for 2018-19, which is consistent with the PFC’s annual utilities report of FY19. The projections of PAT figures of 2019-20 are shown to increase to the tune of negative Rs 60,000 crore, it stated.

This report further builds on these losses and projects total discom losses of Rs 90,000 crore in 2020-21, it further said.

One of the reasons ascribed to this speculation is the decline in electricity volume sales in the year 2020-21 due to the COVID-19-induced lockdown, the ministry said.

This report also mentions a Rs 30,000 crore increase in discom dues to its creditors from March 2020 to December 2020. It perhaps assumes this increase in payables, which is essentially a cash flow problem, to directly reflect into additional discoms losses in 2020-21 over the projections of 2019-20, the ministry said.

“As a result of the above erroneous projections by ICRA, the loss figures of Rs 90,000 crore for FY2021 seem to be grossly inflated,” the ministry said.

It added that the media reports, relying on this misleading projected figures of discom losses, do not take into cognizance the fact that under the current regulatory system of electricity tariff determination, a mechanism of True-up’s already exists. The mechanism would allow the recoveries of losses arising due to change in consumer category-wise consumption patterns coming with COVID-19-induced lockdowns, to be covered through tariffs in the subsequent year, it stated.

ICRA has also alluded to this aspect in their report. However, this nuanced position has not been reflected in the media reports, it said.

The adverse performance of discoms across the country already seems to have gone past the inflecion point, and is showing green shoots of turnaround, the ministry said.

The measures already taken by the government would further incentivise the discoms to reform, perform, and transform in an efficient and cost-effective manner, it said.

The Government of India has been taking significant steps to improve the operational efficiencies and financial viability of discoms, the ministry added.

The Government of India has also launched a liquidity infusion scheme, under which discoms are already availing benefits under the scheme tied to reforms, it added. This will help tide over the liquidity problems of increasing discom payables to power generation companies (gencos) arising out of the outbreak of COVID-19 lockdowns.

The government has also incentivised the discoms to transform, reform and perform by linking 0.5 per cent of the additional borrowings linked to power sector reforms from 2021-22 to 2023-24, it stated.

Apart from the above, the Government of India has also launched the Revamped Reforms-Based Results-Linked Scheme. It allows the states to create infrastructure tied to initiation of reforms and achievement of results for improving their financial sustainability and operational efficiencies, it added.

This scheme would be in operation till 2025-26, and includes a major component of prepaid smart metering to consumers. It is proposed to install 10 crore prepaid smart meters by December 2023 in the first phase.

It said that the aggregate technical and commercial (AT&C) losses came down from 23.5 per cent in 2016-17 to 21.83 per cent in 2019-20.

The gap between average cost of supply (ACS) and average revenue realised (ARR) narrowed to Rs 0.28 per kWh in 2019-20 from Rs 0.33 per kWh in 2016-17, it said.

The annual profit after tax (PAT) figures, being negative, have also shown improvement from Rs 33,894 crore (loss) in 2016-17 to Rs 32,898 crore (loss) in 2019-20.

The power distribution in India is termed as the most important sector but also the weakest link in the electricity industry value chain, the ministry said.

However, it said the sector is also witnessing tell-tale signs of improvement in performance and increase in efficiencies due to a multitude of initiatives made by the central and state governments and the discoms themselves.

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