India’s discom stress post COVID-19

DisComs (Distribution Companies) are the utilities that typically buy power from generators and retail these to consumers.

COVID-19 has completely shattered incoming cash flows to utilities.
- There was a multi-month dip in demand (electricity demand fell by 16 per cent in the first quarter of the current financial year)
- Lockdown disproportionately impacted revenues from so-termed paying customers, commercial and industrial segments.

The Indian government earmarked ₹1,25,000 crore for DisComs as a part of COVID-19 stimulus package to help discoms clear their obligations towards power generating companies but the off-take on these loans has been slow so far.

The continuing deterioration in their position stems from
- Inadequate and irregular tariff hikes,
- AT&C (aggregate technical and commercial) losses not declining to the levels envisaged
- Delays in disbursal of subsidy by state governments.

Regulators themselves have failed to fix cost-reflective tariffs thus creating Regulatory Assets which are to be recovered through future tariff hikes.
About a seventh of DisCom cost structures is meant to be covered through explicit subsidies by State governments.
Consumers owed DisComs over ₹1.8 lakh crore in FY 2018-19, booked as trade receivables.

The central government has proposed several amendments to the Electricity Act 2003 aimed at addressing some of these issues — the suggestions range from privatisation of discoms to moving towards direct benefit transfers for subsidies.
While these and other reforms need to be pushed through urgently to ensure an improvement in the financial position of the discoms, they need to be supplemented with the imposition of stiff penalties on states for failing to usher in the changes needed, or meeting the targets laid out, to effect a turnaround in the sector.
There needs to be a much larger liquidity infusion than has been announced thus far, but it also must go hand-in-hand with credible plans to pay down growing debt.
Improving AT&C losses with a complete overhaul of the regulation of electricity companies and their deliverables is needed.

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