NEW DELHI: It has been five years since the Ujjwal Discom Assurance Yojana (UDAY) was launched, a scheme meant to stanch the bleeding at the discom level and nurture the power sector back to health. But recent audit reports show that even as far back as FY19, discom losses had ballooned far more than earlier estimated.
With FY20 unlikely to have seen any improvement, the current pandemic has only pushed the sector firmly back into deep crisis territory. According to government data, discom dues have soared during the lockdown with April and May accounting for a nearly 20 per cent, or Rs 19,250 crore, increase in overdue payments.
The Centre has rolled out a Rs 90,000 crore relief program to help power distribution companies (discoms) pay their dues to generators (gencos), but many analysts believe that this is little more than a band-aid. One that already seems inadequate to the task considering that overdue payments had hit Rs 1.17 lakh crore by May-end.
On Thursday, analysts from Motilal Oswal Financial Services warned that fixing discom-level issues were of "great (and) urgent importance".
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Discoms have problems aplenty, from operational inefficiencies to unrealistically low tariffs. But they all ultimately lead to a debilitating inability to pay power suppliers on time, weakening players as far upstream as coal mining giant Coal India.
The sharp fall in industrial power demand due to renewed lockdowns is also expected to hit discoms very hard this fiscal year. According to ICRA, all-India electricity demand may contract 5-6 per cent this fiscal year -- steeper than the 1 per cent decline forecast earlier.
MOFSL analysts note that low demand has impacted already "precarious" discom cash balances.
But while it is certainly accelerating the crisis, the pandemic is merely a catalyst.
An audit report from sector financier Power Finance Corporation (PFC) showed earlier this month that provisional estimates had sharply underestimated actual discom losses. At an all-India level, the audit report revised FY19's audited book losses to Rs 49,600 crore versus the earlier estimate of just Rs 28,000 crore -- pushing it back to pre-UDAY levels. And while the power ministry has estimated discom book losses at Rs 30,000 crore for FY20, sources say it will likely turn out much higher.
By the end of the current fiscal year (FY21), experts believe that these losses will balloon even further due to lower demand—by as much as 66 per cent, according to ICRA.
And, as losses expand, so will overall debt. Given the fact that the Centre’s Rs 90,000 crore relief programme is also being delivered as debt through PFC and REC, this figure has also crossed pre-UDAY levels now, according to Girishkumar Kadam, Sector Head and Vice President, ICRA.
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