Weak energy demand, huge losses: Discoms debt can increase this fiscal

by Jun 5, 2020Economy0 comments

The Center’s recent Rs 90 billion liquidity facility will help state power distribution companies (discoms) to settle a significant portion of their overdue bills to generating companies (gencos). However, with weak energy demand and high cash losses amid the pandemic, the crises would end owing lenders a staggering 4.5 lakh rupees at the end of this fiscal year, or 30% more than the last fiscal year, according to Crisil. Such a material increase in debt would deteriorate the credit profiles of the discoms and make structural reforms critical to their sustainability, shows a study of 34 state discoms from 15 states, representing more than 80 percent of India’s energy demand. Today, only one in five discoms is able to pay off debt through its own cash flows and budgeted subsidies. The scenario will worsen this fiscal year due to weak energy demand, which is due to an already low base of past fiscal costs, rising costs, and losses caused by the blockade, the report says. Manish Gupta, senior director at Crisil Ratings, said: “Higher costs and restricted cash inflows amid declining demand mean that the operating gap per unit of discoms will widen to 83 hikes per unit at the end of this fiscal year. In other words, the cash losses for this fiscal year can almost double to Rs 58 billion compared to the last fiscal year, despite increased state government support for subsidies. ”

Blocking impact

Energy demand fell the fifth year on year in April and May combined. While there are signs of a gradual recovery, energy demand across India maybe 2 percent lower, or 31 billion units, this tax because industrial and commercial consumers, who pay between 50 and 100 percent more and cross-subsidize domestic and agricultural products. consumers have been the most affected by the blockade. In addition, collections will be under pressure as the discomforts have allowed consumers of all categories to defer payments and not all fees can be recovered, with the economy facing a recession. The losses caused by the pandemic would further mark the balance of debts. While the additional $ 90 billion rupee debt line from Power Finance Corporation and REC may reduce arrears to gencos, it would be a temporary stitch at best, Crisil said. Higher cash losses could lead to accounts payable re-inflating without incremental financing or state support, Crisil added. Some of the Center’s recent initiatives, such as reducing the accounts receivable from state entities as part of a loan package, moving towards cost-reflecting rates, and privatization, are steps in the right direction. However, all of this would require cleanup of the inherited debt, the elimination of cross-subsidies, and, more importantly, the better business orientation of the discoms. Those would be the key monitors in the upcoming expected reform package, according to the report.

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