Operational efficiency, tariff hikes to cut discom losses by a third this fiscal

MUMBAI: State-owned power distribution companies (discoms) will see their operating losses coming crashing down by a third to nearly Rs 8,000-10,000 crore this fiscal from an estimated Rs 12,000-15,000 crore last fiscal, driven by improving operational efficiency and approved tariff hikes in some key states, coupled with the marginal moderation in the average power purchase cost. Narrowing operating losses have slowed the pace of debt addition by discoms, leading to some improvement in their credit metrics. However, their dependence on state subsidies continues with overall debt burden remaining high and further improvement in average revenue realised will be required to reach a higher level of cash accruals to service debt, Crisil Ratings said in a report. Moreover, discoms remain exposed to risks emanating from the increased adoption of open access for procuring renewable energy by commercial and industrial users, added the report, based on an analysis of 30 state discoms from 11 states, catering to 70% of the national energy demand. Improvement in the operational efficiency is reflected in the reduction of aggregate technical and commercial (AT&C) losses to 15% last fiscal from 19% in fiscal 2020. This follows continued investments in upgrading infrastructure, including replacement of conductors and transformers, feeder segregation and putting cables underground to minimise theft and unmetered sales. According to Manish Gupta, a deputy chief ratings officer at Crisil, the operating gap is expected to narrow to 5-10 paise this fiscal from 12 paise in the last fiscal and well below the 60 paise in fiscal 2020. The improvement this fiscal will be driven by approved tariff hikes in 4 of the 11 states in our sample set, and the removal of compensation cess on coal due to GST rate cuts which will bring down the average powe purchase cost by 4-6 paise per unit. (Though GST on coal has been hiked from 5% to 18%, the compensation cess of Rs 400/tonne of coal has been removed now)