The deteriorating financial position of power distribution companies (discoms) is a matter of serious concern.
The deteriorating financial position of power distribution companies (discoms) is a matter of serious concern. Insufficient tariff hikes, high transmission and distribution losses and low subsidy from state governments have resulted in Rs 2.5 lakh crore of accumulated losses of discoms.
A Crisil report estimates that Rs 75,000 crore of loan, or nearly 15% of aggregate debt to power generation companies, are at risk of becoming delinquent in the medium term. Moreover, close to R1.9 lakh crore of loans to six weak discoms, where the moratorium under the financial restructuring package (FRP) is ending in the next 18 months, are at risk if support is not extended by the Central or state governments. The total outstanding loans to all discoms in the country stood at Rs 4.4 lakh crore as on March 31, 2015.
The government implemented the FRP in 2012 with the objective that states will undertake measures to improve the operational performance of their discoms and eliminate the gap between the cost of power purchase and supply by raising tariff on a regular basis and reducing T&D losses. However, most states have not been able to strengthen the financials of distribution companies.
Crisil estimates that consistent tariff hikes of 10% CAGR over the next three years, and reduction of technical losses by at least 200 basis points will be necessary for discoms to achieve break-even in the medium term.