NEW DELHI: Even at the best of times, the power distribution sector has been among the weakest of links in India’s economic lattice.
And 2020, with its (hopefully) once-in-a-lifetime pandemic and a record economic contraction, hasn’t been kind.
Even before the pandemic struck with full force in March, power distribution companies (discoms) were in a world of trouble. In 2015, the Centre had launched the UDAY scheme to right a sector reeling under a mountain of debt.
But five years later, its plight hadn’t changed by much. At the end of March 2020, discoms’ overdues to power generators (gencos) stood at Rs 96,007 crore—a whopping 56 per cent higher year-on-year. Over 80 per cent had been left unpaid for over 60 days.
But this wasn’t exactly a bolt from the blue. Over financial year 2019-2020, delayed state subsidy payments and untamed distribution losses meant that discoms consistently paid gencos far less than billed.
The situation was bad enough by January 2020 (overdues at Rs 96,960 crore) that industry sources began speaking of an assistance package.
This eventually arrived in May, but as part of the Centre’s Covid-19 relief. By then, April’s nation-wide, near-total lockdown had eviscerated highpaying industrial demand and increased heavily-subsidsed household consumption.
“It was the worst thing that could happen financially, because many (of discoms’) problems come from delayed subsidy payments and distribution losses,” noted a senior state discom executive.
Dues to gencos soared to a massive Rs 1.21 lakh crore at the end of June— 60 per cent higher y-o-y. Things have improved since, driven by improving demand and the liquidity package.
First announced for Rs 90,000 crore and later enhanced to Rs 1.20 lakh crore, the relief is in the form of loans from state-run power sector financiers PFC and REC. But analysts note that this hasn’t been very effective at paring debt, only at arresting further accumulation.
“Disbursements under the scheme have been very slow due to the reluctance or delay on the part of the state governments to adhere to the stringent norms,” noted Emkay Global.
So far, loans worth Rs 1.18 lakh crore have been sanctioned, but only Rs 31,100 crore has been disbursed. At the end of October, discoms owed gencos Rs 1.26 lakh crore.
Going forward, subsidy payment delays from state governments are expected to remain a problem due to severely strained tax incomes.
Another stress risk for discoms is the new notification of power consumer rights, which provide for penalties if they don’t meet certain minimum standards— including 24x7 power supply.
But executives fear that the penalties may just add to the sector’s financial woes. One hope on the horizon is the proposed direct benefit transfer system for subsidies.
If implemented, this would make it mandatory for all consumers to pay discoms in full, with subsidies being transferred to consumers’ bank accounts by state governments.