How bonds may help discoms to recover pending dues; benefit investors, borrowers

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Published: May 27, 2019 12:26:02 PM

The losses for distribution companies surged 43 per cent to more than Rs 21,500 crore at FY19 end as against nearly Rs 15,100 crore in the last fiscal year.

Over half of the regulatory assets market is alone accounted by UP, with the distribution companies entitled to more than Rs 40,000 crore.

After the Modi government returned with a massive mandate, improvement of the weak financial health of discoms stands among one of the big challenges for it. Uttar Pradesh (UP), Maharashtra and Jharkhand currently account for nearly 90 per cent of funds to be recovered from electricity consumers, a report said. According to existing regulatory assets analysed by  India Ratings as per the latest tariff orders till FY18 to FY19, of about Rs 76,963 crore distribution companies in the three BJP-ruled states account for around 87 per cent of this amount or regulatory assets. The companies have been unable to do the recovery owing to insufficient tariff hikes, the report also said, adding the Indian corporate bond market may see a 2 per cent growth if the firms chose to securitise the pending regulatory assets through proposed bond issuance programme benefitting both investors and borrowers.

Over half of the regulatory assets market is alone accounted by UP, with the distribution companies entitled to more than Rs 40,000 crore. However, as against the earlier reported estimates of more than Rs 1.30 lakh crore, the outstanding amount appears to have come down, the report noted.

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Regulatory assets

A regulatory asset is a specific cost of service that a regulatory agency permits discoms to recover, when the tariffs are hiked. The regulatory assets pile up as costs to discoms if electricity costs are not increased to match the requirement, putting them under burden. The inability to recover costs has remained a long-standing worry for the government, with the centre even blaming the firms for not hiking the tariffs to recover dues.

The losses for distribution companies surged 43 per cent to more than Rs 21,500 crore at FY19 end as against nearly Rs 15,100 crore in the last fiscal year. The tariff plans for the next fiscal year has only been approved by six state regulators as of March this fiscal.

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