Revamped distribution sector scheme positive for State Discoms, implementation is key: ICRA

V Rishi Kumar Hyderabad | Updated on July 01, 2021

‘The scheme targets AT&C losses at 12-15 per cent by FY25-26 as against current levels of 21-22 per cent’

The reforms-based and results-linked, Revamped Distribution Sector Scheme, with an overall outlay of ₹3.03 lakh crore over the period of next five years till FY25-26, is a positive development for the sector.

This is inclusive of budgetary grant/support of ₹97,631 crore.

The Cabinet approved scheme envisages turning around the finances of state-owned Discoms by a reduction in losses through operational improvements. However, timely implementation by State governments and Discoms will remain critical, says ICRA.

Sabyasachi Majumdar, Senior Vice-President & Group Head- Corporate ratings, ICRA, says, “The scheme seeks to improve the operational efficiencies through smart metering & upgradation of distribution infrastructure, including the segregation of agriculture feeders and system strengthening, in order to enable state owned distribution utilities to curtail the Aggregate technical and commercial losses (AT&C).”

“The scheme targets AT&C losses at 12-15 per cent by FY25-26 as against current levels of 21-22 per cent. Every one per cent reduction in AT&C loss level will result in a cost reduction/savings for Discoms.”

The credit profile of the State-owned Discoms remains stressed mainly on account of higher level of technical and commercial 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 earlier UDAY scheme by Government of India notified in FY16 and are now estimated at close to ₹6 lakh crore in FY22. The annual book losses for state owned Discoms in FY21-22 are stimated at about ₹75,000 crore. Further, overall subsidy dependence for state owned Discoms in FY21-22 is estimated at about ₹1.3 lakh crore, given the highly subsidised nature of power tariffs mainly towards agriculture and certain sections of residential consumers.

Girishkumar Kadam, Senior Vice-President & Co-Group Head-Corporate ratings, ICRA, said, “Timely tariff determination process including true-up and implementation of fuel and power purchase cost adjustment framework remains critical for the discoms to ensure cost reflective tariffs. The significant delay seen in tariff determination process for utilities in key states also remains an area of concern.”

In terms of tariff order issuance progress for FY22, SERCs in 14 out of the 28 States have issued tariff orders for FY22 as of June 2021, reflecting a slow progress in the issuance of tariff orders. More importantly, tariff orders have not been issued for the past two years in the States of Rajasthan, Tamil Nadu, Telangana, Kerala and West Bengal.

Apart from the delays attributable to the Discoms in filing the petitions, the imposition of the lockdown to control the Covid-19 pandemic has also led to a delay in the tariff determination process for both FY21 and FY22.

ICRA has a negative outlook on the power distribution segment.

Published on July 01, 2021

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