India-Ra Report Predicts Rs 59,000 Crore Losses At Discoms in Fy 21-22

India Ratings Research (Ind-Ra) has released a ready reckoner on financial health of discoms for 2021-22. Ind-Ra has used the data from Power Finance Corporation Limited’s (PFC) report on Performance of State Power Utilities 2019-20, tariff orders from state electricity regulatory commissions and annual reports to carry out the analysis and make FY22 estimates.

In the report, Ind-Ra expects the overall losses of discoms to have widened to around Rs 59,000 crores in FY22 (FY20: Rs 34,500 crores), making tariff hikes critical and inevitable. The FY22 ACS-ARR gap of the graded discoms is expected to have widened to around INR0.57/kWh due to insignificant tariff hikes in FY21 and FY22 and an increase in average power purchase cost. Furthermore, a considerable deviation in revenue grants from state and regulatory income from FY20 numbers could impact the estimates. Karnataka, Haryana and Maharashtra are expected to have the FY22 gap increased from FY20 levels, while Gujarat and Assam will be closer to have the minimal. With 2022-23 starting with substantial hikes in coal prices and related costs, it would appear the situation is no longer about the government bailing out discoms with a loan and  interest subvention scheme again.

Substantial tariff revisions are required to control the ACS-ARR gap. In FY20, the average gap between ACS and ARR had reduced to Rs 0.26/kWh (FY19: INR0.41/kWh) bringing it near FY18 level of Rs 0.25/kWh. However, Ind-Ra observes that the increase in regulatory income to Rs 104.8 billion in FY20 from Rs 59.3 billion in FY18 had led to the significant reduction in the gap. Excluding the regulatory income, the FY20 gap would be Rs 0.37/kWh (FY19: Rs 0.46/kWh; FY18: Rs 0.32/kWh).

The continuing negative trend of EBITDA is a concern. Ind-Ra expects discoms with negative EBITDA to constitute 32% of the analysed discoms in FY22 (FY20: 26% FY18: 22%).

The corrosion of discoms’ financial health is visible through deteriorating payable days. The unhealthy bracket of >90 days had increased to 74% in FY20 from 59% in FY18. Based on our ACS-ARR gap projection, a widening of gap in FY22 is likely to have resulted in a worsening of payable days. However, the discoms availing debt through Atmanirbhar Bharat liquidity package should be able to mitigate the risk.

Dependence on state for greater than 20% subsidy had increased to 54% of the analysed 41 discoms in FY20 (FY18: 42%). Hence, timely subsidy payments from state governments to discoms is necessary for maintaining their working capital cycle. Rs135,700 crores is the subsidy requirement of state-owned discoms for FY22, which is around 19% of the total revenue.