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Covid-19: Under Rs 18,000 cr loss, power discoms looking at a bleak future

The current lockdown period has hit the finances of the discoms with the high-paying industrial and commercial customers are shut for almost a month

power reforms
Due to the sluggish economic activity, industrial power demand is expected to be tepid in the coming months
Shreya Jai New Delhi
4 min read Last Updated : Apr 13 2020 | 11:07 AM IST
State-owned power distribution companies (discoms) are looking at a bleak future in the near term as funding and revenue sources have dried up. Buried under losses of Rs 18,000 crore, with lenders shying to fund them, turnaround of discoms could be a long shot now.

The current lockdown period has hit the finances of the discoms with the high-paying industrial and commercial customers are shut for almost a month. Due to the sluggish economic activity, industrial power demand is expected to be tepid in the coming months as well. While its bulk buyers are elusive, discoms continue to supply to households, subsidised population and agriculture sector. 

In almost all states, industrial power rate is more than double of the domestic rates. States also impose additional surcharges on industrial consumers to cross-subsidise the supply made to agriculture and low-paying consumers. In the last financial year, the cumulative revenue of discoms across India was estimated at Rs 6 trillion. The national aggregate technical and commercial loss (AT&C) or (power supply loss due to inefficient system) of discoms was at 20.8 per cent and its financial loss was Rs 18,316 crore as on December 2019.


Launched in 2017, the UDAY reform scheme has closed. It aimed at financial and operational restructuring of the discoms. After clearing debt from their balancesheet by issuing bonds, most discoms are again incurring financial losses. This is mostly owing to skewed cost-price ratio and inefficient subsidy system. Additionally, not many have shown improvement in reducing their operational losses.

Government sources said the power sector non-banking financial companies have decided to stop any further lending to power discoms that are inefficient. The boards of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) recently approved the proposition that no loans would be given to any discom which is incurring losses, said an official.

“PFC and REC will not lend to any discom, which is making financial losses and has high AT&C losses and has not filed for tariff revision from April 1 onwards,” said an official. He further said the discoms keep missing their reform targets and infusing any more capital creates pressure on the whole supply chain.

“For now there is moratorium of three months on payment to lenders and PFC and REC would follow the same. But post this, there will not be fresh lending to any loss-making discom,” said the official.

The Centre, however, devising ways to help discoms which have been asking the government for liquidity assistance. Sources said a new scheme is under draft stage to help the discoms clear their dues.

“The scheme is conditional and comes with several caveats,” clarified an official adding that it will voluntary for the discoms and for only those which meet the criteria. “The scheme is for clearing dues of only private and central government owned power generating units. Also, unless the state government of the respective discom gives sovereign guarantee and allocates fund from their budget, the discom will not get any grant from PFC and REC,” said the official.

 Sector experts said very few discoms would make the cut for it as states were struggling with their own financial issues. Also, the losses of discoms has impacted the finances of state governments as well. A RBI report on States’ finances in October 2019 said, “Post the implementation of UDAY, state debt witnessed a significant rise in 2015-16 and 2016-17 and continued in 2017-18 albeit at a relatively lower rate despite ceasing of UDAY.”  The report also said the debt position of state governments has started showing incipient signs of unsustainability “particularly post UDAY”.

In a recent analysis, India Ratings indicated lockdown would have a significant impact on the discom collections and cash-flows. “The key reasons are low demand from industrial consumers, higher-than-expected AT&C losses, higher dependence on direct collections from consumers compared to subsidy and inability to increase tariffs immediately,” it said.

Power demand in March fell by 20.5 per cent on an average. Every day since the date of lockdown announcement, the power demand has fallen in the range of 15-32 per cent. This has led to domino effect on the sector. As electricity demand falls to record low, there has been a 68 percent increase in capacity which has been backed down in the past month.

Topics :Coronaviruspower companiesPFC REC

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