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Coronavirus fallout: Cash-starved power discoms' debt to hit record Rs 4.5 lakh crore

The CRISIL report stated that discoms would face a double whammy of high costs and constrained cash inflows, amid declining demand which means the cash losses this fiscal may almost double to Rs 58,000 crore over last fiscal

twitter-logoBusinessToday.In | June 5, 2020 | Updated 17:38 IST
Coronavirus outbreak power distribution sector discoms debt record high crisil report
Finance Minister Nirmala Sitharaman had in May (2020) announced Rs 90,000 crore liquidity package for discoms

The cash-starved power distribution sector's debt would hit an all-time high of Rs 4.5 lakh crore despite the Centre's recently announced Rs 90,000 crore liquidity package for the sector, CRISIL Ratings said on Friday.

Discoms would end up owing lenders 30% more than last fiscal by the end of FY21 in the wake of weak power demand and high cash losses amid the COVID-19 pandemic, the domestic ratings agency said in its study.

It added that although the liquidity package offers power distribution companies a breather by bringing down a significant portion of their overdue bills to generating firms, it would deteriorate discoms' credit profiles making structural reforms critical to their sustainability. The study was conducted on 24 discoms from 15 states, which account for over 80% of India's power demand.

Also Read:Strategy to turn around losses! Power discoms to be privatised in UTs

Crisil further said in its report that "only one in five discoms is capable of servicing debt through its own cash flows and budgeted subsidies."

With the situation likely to worsen due to weak power demand in the wake of coronavirus outbreak, the study enunciated, "the scenario would worsen this fiscal because of weak demand for power, which comes on the back of an already low base of last fiscal, rising costs, and losses caused by the pandemic-led lockdown."

Discoms would face a double whammy of high costs and constrained cash inflows amid declining demand, which according to Manish Gupta, Senior Director, CRISIL Ratings mean "the per-unit operating gap of discoms will widen to 83 paise per unit by the end of this fiscal year. In other words, cash losses this fiscal may almost double to Rs 58,000 crore over last fiscal, despite higher subsidy support from state governments."

The report further exclaimed that the power demand in the country fell "a fifth on-year in April and May combined. While there are signs of a gradual recovery, all-India power demand could be lower by 2%, or nearly 31 billion units, this fiscal because industrial and commercial consumers - who pay 50-100% more and cross-subsidise domestic and agricultural consumers - has been the worst hit by the lockdown."

Also Read: Proposed reforms don't address issues of power sector, says L&T Power CEO Shailendra Roy

As the government extended the world's severest lockdown across India till June end, it has considerably relaxed restrictions in other parts of the country to restart the economy.

Thus, India's power demand that had plunged during the over two-month long lockdown period is slowly getting back to its pre-lockdown levels.

Last month, Finance Minister Nirmala Sitharaman announced that the government would provide Rs 90,000 crore for discoms as part of the strategy to bring the country's battered economy on track. PFC and REC have been tasked with the responsibility to infuse the liquidity.

Also read: Why the Rs 90,000 crore boost isn't enough to revive discoms

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