DISCOMs face financial constraints due to delays in payments from govt departments: ICRA

New Delhi: The state-owned power distribution companies are facing financial constraints despite improving their aggregate technical and commercial losses, according to an Icra report.

The agency has cited delays in realising payments from state government departments for power supply as one of the reasons for the constrain of discom finances and assigned a negative outlook for the power distribution segment.

PSU Watch is now on Whatsapp Channels. Click here to join

The all-India aggregate technical and commercial (AT&C) losses for state-owned discoms declined from 23 percent in FY2021 to 16.5 percent in FY2022 and further to 15.8 percent in FY2023 due to infrastructure upgrades and higher subsidy payout.

Despite this progress, losses remain particularly high at over 20 percent for the discoms in Bihar, Jharkhand, Madhya Pradesh, Odisha and Uttar Pradesh, ICRA noted.

"The performance of state-owned discoms remains constrained by inadequate tariffs relative to the cost of supply, higher-than-regulator-approved AT&C losses, and a considerable debt burden. Further, delays in realising payments from state government departments for power supply constrain the discom finances," Icra said.

The agency further said its outlook for the power distribution segment remains negative.

Icra Vice President & Co-Group Head - Corporate Ratings Vikram V said: "The tariff-determination process for state discoms has improved, following the General Elections, with 22 of the 28 states issuing the orders for FY2025 as of July 2024 against only 11 states as of May 2024.

However, the tariff hikes remain modest with a median 1.7 percent rise for FY 2025, lower than the 2.5 percent approved for FY 2024. Despite an uptrend in tariff hikes in a few states in recent years, discoms continue to incur losses due to increases in power purchase costs, operating inefficiencies in a few large states, and a high debt burden, he said.

The median five-year CAGR for power purchase cost was over 5 percent for the period, leading up to FY2023, whereas the increase in tariffs has been lower, Vikram said.

(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Google News. Click here to follow. Also, join PSU Watch Channel in your Telegram. You may also follow us on Twitter here and stay updated.)