Commenting further, Mr. Girishkumar Kadam, Sector Head & Vice President, Corporate ratings, ICRA, says, “The imposition of lockdown to control the Covid-19 pandemic led to a decline in the all India electricity demand by 13.1% in the first four months of FY2021. While the monthly demand recovered from 85 billion units (BUs) in April 2020 to 112 BUs in July 2020, it remained lower on a Y-o-Y basis. Also, while the peak demand recovered from 133 GW in April 2020 to 171 GW in July 2020, it remained lower by 3.3% compared to July 2019. This was also because of the re-imposition of lockdown restrictions in many parts across the country, due to rise in Covid-19 infections. Given the energy demand trends so far across the key states, ICRA continues to maintain its outlook for about 5-6% decline in the all India electricity demand in FY2021 over FY2020. The decline in demand is expected to supress the thermal PLF on an all India level to about 50-51% in FY2021 against 56.0% in FY2020.”
The decline in demand has adversely impacted revenues and cash collections for the power distribution utilities (discoms), especially given that the bulk of the consumption decline has come from high tariff paying industrial and commercial consumers. The consequent revenue gap for the discoms at all India level is estimated to increase by about Rs. 420-450 billion in FY2021. In the context of the large build-up of receivables from discoms to power generating companies and the adverse impact of the lockdown on the discom finances, the Government of India has announced a liquidity support scheme of Rs. 900 billion for the state power discoms, in the form of loans against receivables, from the Power Financial Corporation (PFC) and the Rural Electrification Corporation (REC). PFC and REC have so far sanctioned Rs. 680 billion under the scheme to clear payments to power generating companies in lieu of dues pending from the state discoms.
“This is a positive development for the Central power utilities and IPPs impacted by the delays in receiving payments from the discoms. For ICRA’s sample set of power generating companies, which together constitute for ~65% of the pending payments from discoms as of March 2020, the recovery of overdue payments from discoms till March 2020 is estimated to lower the interest costs by ~9-10% on an annualized basis, assuming the payments realised under this scheme are primarily used to reduce the debt. Nonetheless, the discoms’ ability to make timely payments in a sustained manner towards the generating companies continues to remain a key monitorable, which would be dependent on the demand recovery from industrial and commercial consumers in the near term, besides the efforts to address the structural issues confronting the distribution segment.” adds Mr. Vikram V, Associate Head & Assistant Vice President, ICRA Ratings. Thus, proactive efforts are required on the part of the state governments and discoms for achieving a sustainable improvement in discoms finances. These include timely filing of tariff petitions by discoms to enable timely issuance of tariff orders by the regulators along with adequate tariff revisions, timely & adequate subsidy payments by the state governments and improvement in operating efficiency through reduction in AT&C loss levels.