The financial health of electricity distribution companies (discoms), which has improved slightly in recent years, has again been hit, reveals the annual rating of discoms by the financing agency Power Finance Corporation (PFC). The sector’s financial deficit is “larger than previously recorded” and is widening due to declining discom profitability, he said.
The cash-adjusted absolute spread of the power distribution sector averaged around Rs 1.04 trillion and is almost 1.4 times the losses incurred.
The report pointed out that the sustained losses of discoms have led to a liquidity crisis in the electricity distribution sector. He said discom current liabilities were nearly double their overall value of liquid current assets in fiscal year 2020-21 (FY21).
“Currently, discom cash is only enough to cover their production, transport and operating liabilities. Offsetting their obligations to lenders will require liquidating their illiquid assets,” he said.
The report, which assesses the financial and operational performance of nightclubs, includes private nightclubs for the first time. Discoms are rated primarily based on their ACS-ARR (cost-revenue) spread, overall commercial and technical (AT&C) losses (operating losses), billing and collection efficiency, debt position and liquidity. Financial performance has the highest weighting, followed by operations and external impacts.
According to the report, absolute cash-adjusted losses increased by 10% in the sector between FY19 and FY21. This was mainly due to the increase in the cash-adjusted ACS-ARR spread. per unit. In FY21, discoms averaged a loss of Rs 0.93 per kWh (kilowatt hour). It was Rs 0.83 per unit in FY19.
“This widening gap can be primarily attributed to stagnating AT&C losses and a lack of cost-reflective rates in the industry,” the report said.
On AT&C’s losses, the PFC saw stagnation after years of gradual decline, which it says is particularly concerning as it reflects worsening discom operations.
After dropping an average of 0.9 per year between fiscal years 2016 and 2019, national average AT&C losses have remained unchanged at 21% for three years now.
The vortex of losses in the electric distribution sector has now infected other parts of the electricity supply chain with discom dues to power generation and transmission companies at an all-time high.
Dues rose to Rs 2.73 trillion, nearly 174 days payable in FY21. In the previous FY, the sector’s total debt stood at Rs 5.89 trillion, an increase of 19% compared to the 2019 financial year.
The PFC said a majority of debt and debt in the sector is held by the worst performing discoms, many of which also have a declining performance trajectory.
All Gujarat discoms have been holding the top five positions on the rating metric, for 10 years now. They are now closely followed by Adani Electricity Mumbai, Torrent Power Ahmedabad and Noida Power Company. Discoms from Uttar Pradesh, Madhya Pradesh, Tamil Nadu, Andhra Pradesh and Bihar are among the bottom 10. Most private discoms reached the top 20.
State-owned discoms across the country are financially and operationally beleaguered despite the introduction of four reform programs over the past 15 years. The earlier reform program, UDAY, concluded in FY20 with most states falling short of their stipulated goals and they are still in the red. It aimed to reduce the national average AT&C losses to 15% by FY21 and the ACS-ARR gap to be negative with 100% billing and collection efficiency. These objectives have been achieved.
Last year, the Union Budget announced a new program – the Revamped Distribution Sector Program (RDSS) – which aims to improve the operational efficiency and financial viability of all nightclub/electricity departments (to exclusion of private sector discos) by providing conditional financial assistance.
The program has an expenditure of 3.03 trillion rupees with estimated gross budget support from central government at 97,631 crore rupees. All existing power sector reform programs would be integrated into this framework programme.