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Rs 90,00-crore package will provide only temporary relief to discoms: Ind-Ra

The Rs 90,000-crore package for the power sector will only provide a temporary relief to power distribution companies but not long-term stability

Ind-Ra believes the infusion of Rs 900 billion (Rs 90,000 crore) would not provide any long-term stability to their finances, a statement said.
Ind-Ra believes the infusion of Rs 900 billion (Rs 90,000 crore) would not provide any long-term stability to their finances, a statement said.
  • Ind-Ra believes the infusion of Rs 900 billion (Rs 90,000 crore) would not provide any long-term stability to their finances, a statement said

  • Due to the nationwide lockdown, the revenue collection of discoms from the industry and commercial segments has nearly dried-up

New Delhi: The Rs 90,000-crore package announced by the government for the power sector will only provide temporary relief to power distribution companies but not long-term stability, India Ratings and Research said in a statement on Tuesday. Earlier in May, Finance Minister Nirmala Sitharaman had announced a liquidity infusion of Rs 90,000-crore for the power sector to ease the debt burden on discoms and revive cash flow in the sector.

The statement released by India Ratings and Research said, “India Ratings and Research (Ind-Ra) believes that the bailout package of Rs 900 billion would only provide temporary relief to power distribution companies (discoms).”

Past precedents

The loans will be provided to discoms against guarantees by state governments and will be used to clear their liabilities towards central public sector enterprise generating and transmission companies (gencos/transcos), independent power producers and renewable energy gencos. However, this benefit has not been extended to discoms for payables towards state gencos, said Ind-ra.

Most of states and their discoms, while joining the Ujwal DISCOM Assurance Yojana (UDAY) scheme launched in 2015, had agreed to achieve a number of milestones relating to aggregate technical and commercial (AT&C) losses, elimination of ACS-ARR gap (difference between average cost of supply and average revenue realisation), distribution transformer/feeder metering etc. However, these milestones have mostly remained unachieved. As a result, despite the transfer of a major portion of debt from the books of discoms to state governments, the finances of several discoms have remained in reds and weak, even prior to COVID-19 related lockdown.

COVID-19 lockdown has only aggravated stress for discoms

The lockdown has only aggravated the stress of discoms. “Therefore, Ind-Ra believes the infusion of Rs 900 billion ( Rs 90,000 crore) would not provide any long-term stability to their finances, so long as the legacy issues relating to operations such as low billing and collection efficiency, high AT&C losses, delayed receipt of subsidy and high receivables are not methodically addressed,” India Ratings and Research said.

Although some states such as Delhi, Gujarat, Andhra Pradesh have maintained their AT&C (aggregate technical and commercial) losses to the UDAY target of 15 percent or below, the majority of the states, especially large power consuming states namely Madhya Pradesh, Karnataka, Rajasthan, Uttar Pradesh, Maharashtra, are still way away from the aforesaid target, it said. Due to the nationwide lockdown, the revenue collection of discoms from the industry and commercial segments has nearly dried-up.

21 major states lost Rs 971 bn in April due to lockdown

Although the supply to households continues, revenue collection was on the lower side. Collectively, these revenues were not enough to even absorb fixed costs fully. This meant further net losses for discoms. As the lockdown has also adversely affected states’ finances, even most state governments would find it difficult to provide necessary support to their discoms, it added. According to an Ind-Ra study, 21 major states lost Rs 971 billion (Rs 97,100 crore) in April alone due to the lockdown.

Although the Centre has relaxed the borrowing limit of states under the FRBM Act to give some headroom to states, it will not be enough, given the fallout of COVID-19 pandemic, India Ratings and Research said.