Rs 80,000 cr losses projected for discoms this fiscal
New Delhi: Power distribution companies are projected to have incurred a whopping loss of Rs 80,000 crore, before accounting for government subsidies, in the current fiscal, according to an ICRA report.
Rating agency ICRA Tuesday projected the losses for discoms— before accounting for government subsidy— in the country at Rs 80,000 crore in FY 2012, much higher than Rs 63,500 crore seen in FY 2010.
Estimates are based on a study of power distribution companies (discoms) functioning in 11 states.
"Taking the subsidy into account, the total book losses for discoms are estimated at Rs 38,000 crore in FY 2012," it said.
About 70 percent of the estimated loss was on account of discoms in Uttar Pradesh, Tamil Nadu, Madhya Pradesh, Rajasthan, Punjab and Haryana, it report said.
"ICRA expects the overall subsidy support for discoms at around Rs 43,000 crore in FY12, which represents an increase of 13 percent year-over-year from FY10," the report said.
According to ICRA, such losses have largely been funded through bank borrowings and stretched payments to power creditors, especially state-run generating companies.
"... With increasing concerns over the credit quality of discoms, the availability of bank funding for such losses has been affected from FY2012 onwards, thus resulting in a stretched liquidity position.
"This has affected debt repayments and resulted in delays in payments to power and fuel suppliers," ICRA said.
The mounting losses of discoms, a major problem for the Indian power sector, has also raised concerns of default in the banking system.
Grappling with precarious financials, discoms in Rajasthan, Haryana and Uttar Pradesh have embarked on debt restructuring initiatives.
The poor health of discoms is mainly attributed to low-tariff regime as well as high Aggregate Technical & Commercial losses.
Recently, the Appellate Tribunal of Electricity (ATE) asked state regulators to ensure time and cost-reflective tariff determination.
Even though tariff increases have taken place in many states recently, ICRA said the quantum of hikes is well short of what is required for full recovery of costs.
In December last year, the high-level Shunglu Committee's report on Financial Position of Distribution Utilities came up with a raft of suggestions, including setting of a Special Purpose Vehicle to absorb the losses of discoms.