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Unless reforms happen, the overall losses of power distribution companies will account for up to 1.2 per cent of the country’s nominal GDP by March, 2014, says a research report.
The financial health of power distribution companies (discoms) is a major concern. Many states in recent times have moved towards hiking the electricity tariffs to improve their financial position.
“Crisis in the power sector is reaching a tipping point with distribution companies’ losses, as a percentage of the nominal GDP, likely to reach 1.2 per cent by March 2014, if reforms are not implemented,” Avendus Securities said in a recent report.
The losses of discoms as a percentage of the nominal GDP rose to 0.9 per cent in FY 2010 from just 0.6 per cent in FY 2006.
The report noted that these losses are likely to have climbed up to 1 per cent of the nominal GDP last fiscal.
“Between FY 1999 and FY 2002, SEB losses, as a percentage of the nominal GDP surged high to 1.2-1.5 per cent,” it added.
The net loss of 15 discoms - which account for over 90 per cent of country’s power consumption - after subsidies was Rs 27,000 crore for the year ended March 31, 2010, according to the Shunglu panel report released late last year.
The committee on financial position of distribution utilities had come up with various suggestions such as setting up of a special purpose vehicle to absorb the losses of discoms.
One of the major causes for the ill-health of discoms is the mismatch between tariff and cost of generating power.
As per Avendus report, discoms of key states need to hike power tariffs at a CAGR (Compound Annual Growth Rate) of 13 to 58 per cent in FY 2013-FY 2014.
In March, rating agency ICRA had projected the losses for discoms - before accounting for government subsidy - in the country at Rs 80,000 crore in FY 2012, much higher than Rs 63,500 crore seen in FY 2010.
The estimates were based on a study of power distribution companies (discoms) functioning in 11 states.
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