New loan scheme has little impact on discom dues

States' pending payments to distributors down just 4% since March 2020

Almost a year after it was launched, the special loan scheme for state-owned power distribution companies (discoms), part of the Atmanirbhar package, has had little impact on clearance of dues.

Though the dues discoms owe power generation and transmission companies have reduced by 23 per cent since March 2020, the dues state governments owe discoms have only decreased by a mere 4 per cent.

States owed discoms ~1.13 trillion as of March 31 in subsidies and payment for power they buy for their departments. These dues peaked at ~1.32 trillion as of June 30, 2020, because of the impact of the moratorium on payments. In fact, dues were higher at the end of June than the ~1.13 trillion reported as of March 31, 2020.

The discom dues to generation and transmission utilities, including renewable energy companies, stood at ~1.48 trillion on March 31, 2021. It, too, had peaked to ~2.53 trillion on June 30, 2020.

On the operational front, the AT&C loss or power supply losses due to inefficient systems, stands at 24 per cent, according to the UDAY portal. This is similar to financial year 2014-15 (FY15) levels, when the first discom revival scheme, UDAY, was launched.

According to ICRA estimates, the gross debt level for state-owned discoms at an allindia level is likely to cross ~6 trillion in FY22 from an estimated ~5 trillion in FY21, significantly higher than the PREUDAY level of ~4 trillion. This increase would be because of the loans availed under the liquidity package. The official data on discoms’ debt is yet to be made available.

“Such a high level of debt is unsustainable for the discoms,” ICRA said in its report.

In June 2020, Union Finance Minister Nirmala Sitharaman announced a special liquidity infusion scheme for the ailing power distribution sector. The ~90,000-crore loan scheme was for discoms to clear their dues to the power generating and transmission companies. State-owned lenders Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) lent ~45,000 crore each.

The discoms received ~75,000 crore till March 2021. Total loan sanctions crossed ~1.3 trillion and the scheme has been closed. PFC and REC have cumulatively disbursed ~29,500 crore (~14,900 crore by PFC and ~14,600 crore by REC) in the past two months.

According to ICICI

Securities, the latest round of disbursements under the package have significantly helped to infuse liquidity into the value chain. This, however, may not ease the stress. Dues are estimated at ~1.48 trillion as of March 2021, higher than the loan amount disbursed.

The Union Budget also announced a revamped reform scheme for discoms, entailing ~3.05 trillion expenditure. The scheme would put the onus on the states to formulate their own action plans and funds would be disbursed accordingly. Unlike earlier schemes, the current one would not have a “one-sizefits-all” approach.

ICRA, in its commentary on the power sector in March, said the outlook remains “negative” for the state-owned distribution segment, given the continued weakness in the finances of most state-owned discoms.

“This is because of a mix of issues, including high levels of AT&C losses, inadequate tariffs in relation to their cost of supply and delays in receiving subsidy from the state governments. Discom finances have also been adversely impacted by the sharp decline in revenues from the commercial and industrial customers in Q1 FY21, because of lockdown restrictions. This, along with the lack of tariff revisions, is estimated to widen the revenue gap for discoms at the allindia level by ~30,000 crore in FY21,” ICRA said.