Ratings agency ICRA estimates Rs.85,000 crore subsidy for power distribution companies

Rating agency ICRA has estimated a subsidy dependence of Rs 85,000 crore amid low tariff hikes allowed for power distribution companies in 2018-19. ICRA also expects improvement in thermal plants capacity utilisation or PLF (Plant Load Factor) in near to medium term.

“The domestic electricity demand growth is likely to remain at about 5 to 6 per cent in near to medium term, supported by thrust towards rural electrification, expected recovery in industrial/ commercial segment along with some improvement in the paying capacity of the state-owned distribution utilities,” Girishkumar Kadam, Sector Head & Vice President, ICRA Ratings, said in a statement.

However, Kadam said the augmentation of domestic coal supply to meet such increase in demand for the power generating companies remains crucial, and as a result, any delay in ramping up of coal supplies from domestic sources will lead to increase in the dependence on coal imports as seen during FY2018.

The all India electricity demand growth slowed down to 3.1 per cent on a year-on-year basis in the first two months of FY2019 against the growth of 7.5 per cent reported in Q4 FY2018 and lower than the growth of 5.9 per cent witnessed in the first two months of FY2018, it said.

With respect to the distribution segment, the state electricity regulatory commissions (SERCs) in 21 out of the 29 states have issued tariff orders for FY2019 so far, reflecting reasonable progress in the issuance of tariff orders for the year, it added.

According to ICRA, the median tariff hike based on the tariff orders issued in the 21 states remained low at 2 per cent, with the SERCs in seven states not approving any tariff hike and the downward revision in tariff in two states. The only exception has been the SERC in Jharkhand, which approved a steep tariff hike to cover the entire revenue gap.

“This in turn has resulted in higher subsidy dependence for distribution companies (discoms) in few states. The overall subsidy dependence for distribution companies at all India level is estimated to increase in the range of 7 to 8 per cent on y-o-y basis to Rs 850 billion (Rs 85,000 crore) in FY2019,” said Vikram V, Associate Head & Assistant Vice President, ICRA Ratings.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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