Narendra Modi’s UDAY dream back to square one, as discom debts rebound to earlier levels

By: |
May 06, 2019 7:00 PM

State-owned electricity distribution companies (discoms) are going to find themselves in debts equalling that seen in pre-UDAY era.

uday, power sector, power industryDiscoms need to find ways to make themselves commercially viable. 

In what could be a major setback to Prime Minister Narendra Modi’s UDAY scheme, state-owned electricity distribution companies (discoms) are going to find themselves in debts equalling that seen in pre-UDAY era, a research report says. The discoms must brace for Rs 2.6 lakh crore debt by the end of this fiscal, bringing the dreams of UDAY’s success to square one, CRISIL Ratings said in the report.

Most states do not have a big fiscal legroom which makes it difficult for them to extend financial aid to discoms. The onus then falls onto the discoms to become commercially viable by taking measures such as tariff hikes and material reduction in AT&T transfer losses, CRISIL report said with the analysis of discoms in 15 states. The 15 states taken into account by CRISIL account for 85% of the total losses.

Also Read: Has Modi’s UDAY scheme fulfilled its destiny? A review of power sector

DISCOM debt: Continued upward trend

While the debts stood at Rs 2.75 lakh crore in the financial year 2015, before UDAY’s launch, the debt saw a considerable fall for the next two years at Rs 1.94 lakh crore in FY16 and 1.56 lakh crore in FY17. However, since then, it has been on a continued upward trend at Rs 1.85 lakh crore in FY18E, Rs 2.28 lakh crore in FY19E to the now alarming number of Rs 2.6 lakh crore.

AT&C losses: Major road blocker

The electricity lost in transmission (AT&C) was expected to be brought down by 900 basis points (bps) to around 15% in fiscal 2019. However, the same was seen at only 400 bps by December 2018. Also, the discoms were expected to implement regular tariff hikes of 5-6% per annum. This has been witnessed at a mere 3% per annum, slowing down the discom viability.

Further, the focus on new rural connections without implementing adequate tariff hikes will lead to increased losses, Subodh Rai, Senior Director, CRISIL Ratings said. The debts of discoms will swell to about Rs 2.6 lakh crore by the end of fiscal 2020, he said, adding that this will hinder the improvement in discom operations.

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