India : Easy-money tap shuts for discoms

The government’s move to stop institutional loans to state electricity distribution companies (discoms) unless they draw up a roadmap for loss reduction and adhere to it augurs well for stakeholders across the sector.

The Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) have to strictly adhere to prudential norms and review existing loan utilisation carefully before granting new loans to state utilities, whether for capital or non-capital expenditure, the Union power minister announced recently.

Also, discoms with aggregate technical and commercial (AT&C) losses above 15% will not be granted any loan unless they draw up a roadmap for reduction of the losses within two years. The ministry will monitor and verify progress on the action plan, including the process and data quality monitoring practices adopted, and further grant of loan may be considered for such discoms only upon satisfactory performance.

As of fiscal 2017, REC and PFC together had ~Rs 81,000 crore of loans outstanding against Discoms, which works out to 18% of their total outstanding loans. This amount has significantly reduced after repayment of more than Rs 75,000 crore under UDAY scheme.

In addition, several central schemes, such as the Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), Restructured Accelerated Power Development and Reforms Programme (R-APDRP), Integrated Power Development Scheme (IPDS), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), and the Sahaj Bijli Har Ghar Yojana (Saubhagya), have been providing significant capital support in the form of grant.

Again, to incentivise discoms, the government has provided an option to convert a certain percentage of loans to be granted once the target AT&C loss reduction has been achieved. For instance, under DDUGJY and IPDS, 15% of a discom’s loan would be converted into grant if they achieve AT&C loss targets. Similarly, under UDAY, state governments have assured that loss funding of discoms will be only limited to the accepted AT&C loss trajectory.

Despite all this, average AT&C loss in the country reduced only marginally from 23.98% in fiscal 2016 to 21.60%[1] in fiscal 2018.


Source :

Smart Grid Bulletin May 2020

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