Discoms' overdues may jump 50pc on longer lockdown

Power sector reforms will be one of the biggest casualties of the current nationwide lockdown to fight the Covid-19 pandemic, as falling demand and slowing cash position is expected to substantially increase the losses of power distribution companies with their overdues to generation companies rising between 30 per cent and 50 per cent in less than a years time.

But with the Covid-19 induced lockdown already reducing power demand by 25-30 per cent, the cash position of discoms is expected to further deteriorate, and if the situation continues for long, it could add to 30-50 per cent of their dues in the next few months.

"Following the announcement of the country-wide lockdown, India's power demand has witnessed 25-30 per cent YoY decline. The plunge has been witnessed due to the slowdown in the operations of industrial and commercial consumers, which are high-paying, cross-subsidized customers. As a result, discoms' cash position is expected to be impacted. Accordingly, such overdues are likely to increase," brokerage firm Motilal Oswal said.

The government had announced the discom reform scheme, UDAY, which allowed for taking off the financial pressure from the books of the discoms. This improved their position for some time, but non-adherence to timely and proper tariff revision and complete apathy of the state governments has again added to the financial pressure of the discoms.

Motilal Oswal said that possible default on discounted bills and an extended period of lower demand, resulting in cash issues for discoms, could stretch the overdues.

As part of relief to the discoms, power sector regulator CERC has reduced the rate of late payment surcharge payable by discoms between March 24 and June 30 to 12 per cent from earlier 18 per cent. But with cash position of discoms already under pressure, even reduced LPS would add to the burden on their books.

The government has decided to provide three months' moratorium to financially stressed state discoms on their payment dues to power generating companies as part of relief measures to the sector from the Covid-19 related disruptions.

Discoms have also been allowed to maintain just 50 per cent of the payment security (through LCs) mechanism with the generating companies.