ICRA has maintained negative outlook on power distribution segment, and said that the credit profile of state-owned Discoms continues to remain stressed due to higher level of AT&C losses compared to regulatory norms, inadequate tariffs in relation to their cost of supply and inadequate subsidy support from the respective state governments.
March 08, 2021. By Manu Tayal
Credit rating agency ICRA has maintained a negative outlook on the power distribution segment, and said that the credit profile of state-owned distribution utilities (Discoms) continues to remain stressed due to higher level of technical & commercial (AT&C) losses compared to regulatory norms, inadequate tariffs in relation to their cost of supply and inadequate subsidy support from the respective state governments.
As a result, Discoms’ debt levels have again gone up post the implementation of UDAY scheme by Government of India in FY2016 and are now estimated at close to Rs 6 trillion in FY2022, it added.
This apart there has been a build-up in dues to power generators by 30 per cent to Rs 1.27 trillion as of December 2020 on a Y-o-Y basis.
However, the credit profile of several privately-owned discoms remains healthy supported by superior operating efficiencies, favourable demographic profile and timely pass-through of cost variations to consumers, the credit rating agency said in its report.
Commenting on the matter, Sabyasachi Majumdar, Group Head & Senior Vice President - Corporate ratings, ICRA, said, “Such high level of liabilities (debt plus dues to Gencos) is unsustainable for the discoms and in turn for the growth of the power sector as such. The implementation of reforms in the distribution segment is essential which could either be through privatisation or through delicensing as proposed by the Government of India. However, a strong political will and support from the state governments is required for implementation of such proposals given that power is a concurrent subject. Further, delicensing would require suitable amendments to the Electricity Act as well as requisite policy and regulatory clarity w.r.t. the division of wires and supply business and tariff determination process for the incumbent and new licensees.”
The recent announcement of revamped reforms-based result-oriented scheme in the Budget 2021 with an outlay of over Rs 3 lakh crore to be spent over five years is directionally positive with the intent to improve the viability of state owned discoms. A major part of this outlay is expected to be towards smart meters and upgrading distribution infrastructure, ICRA further said.
The state owned Discoms could thus look at multiple measures to achieve a reduction in book loss levels through improvement in distribution loss levels by use of smart meters, use of distributed solar projects for supply of power to agriculture consumers and graded tariff hikes without any tariff shock to the consumers.
“A 1 per cent reduction in distribution losses would thus lead to savings and hence the reduction in book losses by Rs 50 billion per annum on all India basis, on a marginal cost basis. Further, use of distributed solar power projects for supply to agriculture consumers through dedicated agriculture feeder route is estimated to entail significant savings (estimated at Rs 1.4 billion per GWh of agriculture load met through solar) to discoms through reduction in power purchase cost and lower distribution losses, given the highly subsidised nature of power tariffs to agriculture consumers. Apart from the improvement in operating efficiency, timely tariff determination process including true-up and implementation of fuel & power purchase cost adjustment framework remains critical for the discoms to ensure cost reflective tariffs,” said Girishkumar Kadam, Co-Group Head & Vice President, ICRA Ratings.
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