Discoms future growth depends on debt restructuring

The country's power distribution utilities have collectively recorded a positive Profit After Tax (PAT) of Rs 2,701 crore in the year FY 2024-25, marking a significant turning point for the sector. Further growth will be fuelled by debt restructuring and state-level reforms.  

According to experts, the central government has been pushing for reforms in the power sector to improve the performance of distribution companies, which have been reporting PAT losses for the past several years since the unbundling and corporatisation of State Electricity Boards.

Alok Kumar, former secretary, Ministry of Power, lists four measures that have resulted in this gain.

“These include Revamped Distribution Sector Scheme (RDSS), Enhancing financial viability through infrastructure modernisation and accelerated smart metering, additional borrowing schemes, Fuel and Power Purchase Adjustment Surcharge (FPPAS) mechanism to ensure timely recovery of cost by distribution companies and smart metering power,” Kumar tells Business Today.

He says that future growth depends on increasing the smart metering network, focusing on states to make power sector reforms and key steps towards debt restructuring. States have also realised that power is the core for industrial and overall development of the state, and there has been renewed focus to push for state-level power reforms.  

Devil in Details

The Ministry of Power said that discoms recorded a positive PAT of Rs 2,701 crore in FY 2024-25 compared to a loss of Rs 25,553 crore in FY 2023-24 and a loss of Rs 67,962 crore in FY 2013-14.

Vibhuti Garg, Director for South Asia, the Institute for Energy Economics and Financial Analysis (IEEFA) says the devil lies in detailing which states have done this tremendous performance because clearly, I think some of the bigger states will still be meaning under huge losses.

“I really would want to see the state-wise data behind these numbers. It is a positive development, but at the same time, it looks unreal because, like in financially Year 2023-24, we had about Rs 25,553 crore losses, and suddenly we now have Rs 2,700 crores profit,” she says.

Garg acknowledges that there have been a lot of investments by the government through different schemes and different initiatives being taken, which have, over the years, reduced the Aggregate Technical & Commercial (AT&C) losses for the distribution companies.

“There is strengthening the grids and strengthening of the infrastructure that has helped reduce both billing and collection losses and more importantly, being able to provide electricity 24/7. India was kind of facing a huge energy deficit and these have gone down. I think that increased share of renewables, which are most cost competitive have brought down overall power purchase for the distribution companies,” Garg explains.

On the debt reduction roadmap for power distribution players, she says that adding more and more renewable energy with storage systems is important.

“Ensuring that the power portfolio of these distribution companies dispatches the cheaper power first, which is more efficient and more sustainable. Also, ensuring that power subsidies are only provided to consumers to BPL consumers,” she added.

Reforms

According to the government, amendments to electricity rules helped in enforcing timely cost adjustments, prudent tariff structures, and transparent subsidy accounting to ensure full cost recovery.

It also introduced uniform accounting and enhanced transparency across Distribution utilities for improved financial governance and enforced legal contracts through timely payments in the power sector, thereby supporting investment in new RE projects.

Besides, incentivizing states to implement critical power sector reforms, with borrowing limits tied to performance metrics as part of the Additional Borrowing Scheme, helped in improving the financial health of Discoms.