Tamil Nadu, AP, Telangana account for ~71% of dues from DISCOMs to RE generators

• According to the PRAAPTI portal, the overdue of conventional generators amounts to Rs 1,065 billion in July whereas Rs 103 billion is overdue to non- conventional generators

• Unless, the underlying issues are addressed, we might need another bailout package soon, said the report

New Delhi: In its recent report, JMK Research has said that renewable energy-rich states like Tamil Nadu, Andhra Pradesh, and Telangana account for ~71 percent of the total outstanding dues from Discoms to RE generators. "Discoms are the weakest link in the entire value chain of the Indian electricity sector. Their inability to pay generators on time, manage their losses and improve on other inefficiencies weighs down the entire power sector," the report noted. Discoms in India have been functioning sub-optimally and have even been described as a "leaking bucket", due to their inability to break-even despite multiple financial bailouts over the years.

Discoms owe Rs 1,065 bn to conventional gencos, 1,065 bn to non-conventional

According to the PRAAPTI portal, the overdue of conventional generators amounts to Rs 1,065 billion in July whereas Rs 103 billion is overdue to non- conventional generators. "The infusion of one time-liquidity (of Rs 90,000 crore) cannot ensure the improved effectiveness of Discoms in the longer run. Several past instances of liquidity infusion have done little good to improve the financial health of Discoms," the report said.

The outstanding amount to the renewable generators can fade away their confidence in Discom's ability to payback and as a result they may look beyond the discoms to sell their power in open market, said JMK Research. Piling overdues and payment delays can render the renewable projects unviable, which are already facing other risks such as tariff renegotiation, which may deter lenders cautious about committing funds to such projects, potentially driving up the finance cost. This vicious cycle can seriously hurt the renewable sector, the report said.

Revenue deficit a major problem with Discoms

The major problem with Discoms despite various steps taken is revenue deficit. The cost of power procured by Discoms is generally higher than the tariff charged to consumers. The main causes for this include, technical losses during the transmission and less average revenue realised due to lack of effective billing procedures, lack of proper recording of the consumption of power and power theft.

If tariffs are not revised, Discoms may need another bailout package

The tariff structure is also not rationalised, where commercial and industrial (C&I) consumers bear the brunt of cross-subsidy of residential and agriculture segments. These inherent flaws plague the Discoms, thereby rendering them unsustainable. Unless, the underlying issues are addressed with the support of central and various state governments and necessary reforms are bought in, we might need another bailout package soon.

Also read: PFC, REC have disbursed Rs 24,674 cr to discoms, says RK Singh

The reforms so far and how they have fared

In 2015, Ujwal DISCOM assurance yojana (UDAY) was launched by government wherein financial and technical targets were given to the states. The states took over 75 percent of the debt of the Discoms and issued bonds that were subscribed to by banks and financial institutions. Five years since the scheme was launched, the debt condition of Discoms has remained the same.

Recently, in May, the government announced liquidity infusion to the extent of Rs 900 billion through Power Finance Corporation and Rural Electrification Corporation (PFC-REC) to help cash strapped Discoms pay their dues till March 2020. Now, the government is set to hike this to Rs 1,200 billion to help discoms pay their outstanding bills until June 2020. Though this move has been welcomed by various stakeholders, it does not provide a long- term solution, the report said.

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