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Cover Story | May 2017

Meeting AT&C loss target a challenge for UP & Rajasthan

Sabyasachi Majumdar, Senior Vice President and Group Head, ICRA

Which are the states that have made strides through UDAY and who are the laggards?
Under UDAY, progress in participation in terms of signing of MoUs and implementation of the scheme with respect to debt take-over/ refinancing has been satisfactory so far. Nonetheless, ability to reduce aggregate technical & commercial (AT&C) loss in line with targets as well as adequate tariff hike by SERCs will be critical for distribution utilities which have weak financial position, going forward so as to ensure sustained financial turnaround. It is seen that actual tariff hike for FY 2017 in some of the states (like in Andhra Pradesh, Bihar, Punjab, Maharashtra and Uttar Pradesh) have remained lower than anticipated hike as per MoUs signed under UDAY. Further, there are challenges to meet the AT&C target of 19% by FY 2020, given the significantly higher AT&C loss levels currently for discoms, especially in states like UP, Rajasthan, Bihar and Haryana.

Though surplus power is available in India, off-take at discoms’ end is slack. Are there any visible signs of the state discoms signing new PPAs?
With an improved energy availability led by capacity addition and subdued energy demand, there are no visible signs of the state discoms to sign new PPAs as of now. More importantly, a significant pick-up in energy demand is required which will crictically depend upon factors such as:
a)the capex revival in industrial sector which contributes about 30% of energy demand in the country ; and
b)a sustained improvement in the financial position of discoms so that their off-take improves and load shedding pattern is reduced.

Do you think UDAY has helped improve the finances of discoms over the last one year? Please back-up your answer with latest data.
Overall progress in implementation of Ujwal DISCOM Assurance Yojana (UDAY) has been satisfactory with 27 states/ union territories (UT) joining the scheme and 13 of these states have issued bonds worth Rs. 2.32 lakh crore as on date towards refinancing the debt on the books of the state-owned distribution utilities (or discoms), which in turn has improved the liquidity profile of the discoms in these states. The takeover of debt on the books of the discoms by the respective state governments is expected to happen in a gradual manner in the larger states, with part of the refinanced debt being retained as state government loans to the discoms, which will be subsequently converted to grants over the period from FY2018 to FY2021. The debt refinancing on the books of the discoms is resulting into an liquidity improvement and also, estimated to lower the discom book losses from ~Rs. 67000 crore in FY2015 to ~Rs. 37500 crore in FY2017. This would in turn improve their ability to off-take power and also the payment discipline to power generators.

What is the progress on increasing power tariffs to cover costs at least? How the political will can be a catalyst in this respect?
The discoms are required to file the tariff petitions by November 30, 2016 as per the tariff regulations, so that tariff orders could be issued by the State Electricity Regulatory Commissions (SERCs) by March 31, 2017. This is especially significant, given that one of the key conditions under UDAY is timely filing of tariff petitions by the discoms to enable timely issuance of tariff orders by the respective SERCs. The delay in filing of tariff petitions and subsequent issuance of tariff orders continues to be observed in large states like Rajasthan, Tamil Nadu and Uttar Pradesh. The delay in filing of tariff petitions for FY 2017-18 in states like Punjab, Goa and Uttar Pradesh can be attributed to the elections to the state assembly held in March 2017. (State Polls) In terms of tariff order issuance for FY 2017-18, so far tariff orders have been issued by SERCs in 9 states with tariff hikes ranging between 2 % to 9% (except in Bihar where tariff hike has been significant, i.e. by 20%).

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