Viability of DISCOMs

Conference of Power and New & Renewable Energy Ministers of States and UTs

14th October 2022

Viability of DISCOMs 1
Agenda
▪ Introduction

▪ Factors affecting DISCOMs Viability

▪ Key Impacts

▪ GOI Initiatives to address Viability Issues of DISCOMs

▪ Way Forward

Viability of DISCOMs 2
Introduction

• Power Distribution remains the most critical link in the power sector value chain
• The impact of any inefficiency within power distribution flows to all upstream players in the value chain which equally
affects their operations and financial viability
• Financial performance of DISCOMs at aggregate level has remained a matter of concern
• Accumulated losses of DISCOMs were at INR 5,16,336 Cr. as on 31.03.2021
• Overview of the key financial and operational performance indicators for DISCOMs at aggregate level are as follows
Parameter Units FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21
Financial Performance
Annual Profit/ (Losses) INR Cr. (47,526) (33,894) (27,966) (49,103) (31,672) (50,281)
ACS-ARR Gap (accrual basis) INR/ kWh 0.54 0.58 0.50 0.70 0.60 0.71
ACS-ARR Gap (cash basis) INR/ kWh 0.73 0.90 0.60 0.86 0.83 0.95
Total Borrowings INR Cr. 4,21,087 4,17,106 4,64,422 5,00,022 5,14,237 5,86,194
Operational Performance
Billing Efficiency % 80.69 81.69 83.07 83.91 85.36 84.07
Collection Efficiency % 94.24 93.65 94.50 93.26 92.64 92.40
AT&C Loss % 23.96 23.50 21.50 21.74 20.93Viability of DISCOMs 22.32
3
Factors affecting DISCOMs Viability

Viability of DISCOMs 4
Factors affecting DISCOMs Viability

1. Absence of Cost Reflective Tariff

a. Tariff realized (ABR) vis a vis Cost Structure

ACS (on sales unit) vs Average Billing Rate (ABR)

ACS (on sales unit) and ABR

0.70 0.74 0.80

0.69 0.66 0.66
9.00 0.58
7.42 7.45 7.61 0.60
6.82 6.84 6.88 6.68 6.79 6.95
7.00 6.12 6.15 6.30

Gap
0.40
5.00 0.20

3.00 0.00
FY16 FY17 FY18 FY19 FY20 FY21
ACS (on sales units) ABR Gap
Source: PFC
State/DISCOM wise on ABR, ACS on Sales Unit and Gap provided in Annexure

• DISCOM’s tariff realized are not in line with their cost structure
• Non-achievement of performance targets on T&D loss, O&M etc. has led to various disallowance in ARR by
concerned regulators
• Involvement of State Governments in tariff fixation exercise has also led to non-increase in tariff
Viability of DISCOMs 5
Factors affecting DISCOMs Viability

1. Absence of Cost Reflective Tariff (contd..)

b. ACS-ARR Gap (Cash Basis)
ACS (on input energy) vs Cash Adjusted ARR (on input energy)
ACS (on input energy) and Cash
adjusted ARR (on input energy)

0.95
10.00 0.90 0.86 1.00
0.83
9.00 0.73 0.80
8.00 0.60
7.00 0.60
6.14 6.19

Gap
6.00
6.00 5.31 5.38 5.50 5.15 5.31 5.24 0.40
4.57 4.91
5.00 4.48
0.20
4.00
3.00 0.00
FY 16 FY 17 FY 18 FY 19 FY 20 FY 21
ACS (on input energy) Cash Adjusted ARR (on input energy) Cash Adjusted Gap (ACS-Cash Adjusted ARR) (on input energy)
Source: PFC
State/DISCOM wise on Gap provided in Annexure

• More than 11% increase in the Cash Adjusted Gap from 2019 to 2021 (from INR 0.86/kWh to INR 0.95/kWh) thereby
implying that DISCOMs, on an average basis, are making a loss of INR 0.95/kWh per unit of input energy

Viability of DISCOMs 6
Factors affecting DISCOMs Viability

1. Absence of Cost Reflective Tariff

c. Delay in issuance of tariff/ true-up orders

~39% States/ UTs have not issued Tariff Orders for FY 2022-23 before 31st March 2022

~103 Average Delay (in Days) in issuance of Tariff Orders for FY 2022-23

Total number of States/ UTs

Particulars
FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23
Tariff order issued before 31st Mar of
13 12 18 22
corresponding year
Tariff order issued after 31st Mar of 21 22 14 10
corresponding year (Delay: ~156 days) (Delay: ~143 days) (Delay: ~139 days) (Delay: ~103 days)
Tariff Order not issued 2 2 4 4
Total 36 36 36 36
Source: Report on Key Regulatory Parameters of power Utilities (30th Sep 2022)
State wise date of issuance of Tariff Orders
Viability of DISCOMs 7
Factors affecting DISCOMs Viability

1. Absence of Cost Reflective Tariff

d. Revenue Gaps Revenue Gap (INR Cr.)

89,375
• Delay in commensurate tariff increase by
SERCs has led to creation of revenue gaps.
48,368

~1.6 Lakh Cr Cumulative Revenue Gaps

for 16 states /UTs
8,955 6,274
4,580
380 336 291 196 154 107 88 60 7 5 5
~87% Contribution of TN &
Rajasthan on Revenue Gap

Source: Report on Key Regulatory Parameters of power Utilities (30th Sep 2022)

Viability of DISCOMs 8
Factors affecting DISCOMs Viability

2. High T&D/ AT&C Loss

FY 2015-16 FY 2020-21
• India has one of the highest levels of T&D losses
vis-a-vis its peers amongst developing and Collection 92.40%
94.24%
Efficiency
developed countries.
Billing
80.69%/ 19.31% 84.07%/ 15.93%
• Even countries with similar socio-economic Efficiency/
T&D Loss
composition like South Africa (9.97% in 2018) and
Bangladesh (11.11% in FY 2020-21 ) have 23.96% AT&C Loss 22.32%

significantly lower T&D losses Source: PFC report on Performance of Utilities

14
12
T&DLoss %

10
8
6
4
2
0
South
Korea Japan Germany Italy Australia France China USA Canada UK Russia World
Africa
2017 3.47 4.04 4.95 6.01 5.89 9.53 8.02 5.46 5.68 6.45 8.21 12.15 8.4
2018 3.31 4.54 4.94 5.78 5.92 9.97 8.06 5.27 5.13 6.11 8.15 11.95 8.2
Viability of DISCOMs 9
Factors affecting DISCOMs Viability

3. Accumulation of debt leading to high interest costs

• Total Debt has increased from INR 4,21,087 Cr. in FY 2015-16 to INR 5,86,194 Cr. in FY 2020-21
• The interest amount over the same period has increased from INR 46,454 Cr. to INR 55,773 Cr
• Interest cost as a percentage of total expenses of all DISCOMs is ~7.3% for FY 2020-21
4. Dependence on State Govt. Subsidies and Delay in its Disbursal

• Tariff Subsidy booked at the national level increased from INR 75,608 Cr. in FY16 to INR 1,32,416 Cr. in FY21
• Share of tariff subsidy in total revenue of DISCOMs has increased from 15.51% to 18.53% over the same period
• The total outstanding subsidy were ~INR 76,337 Cr as on 31st Mar 2022
States with subsidy billed > 25% of total revenue of DISCOMs Notable Increase in Tariff Subsidy Booked:
• MP (46%) • Rajasthan (30%) FY 2018-19 FY 2020-21
• Manipur (37%) • J&K (29%) 70%
Andhra Pradesh 6,030 Cr 10,265 Cr
• Punjab (32%) • Karnataka (29%)
69%
• Bihar (31%) Madhya Pradesh 11,615 Cr 19,595 Cr
Viability of DISCOMs 10
Factors affecting DISCOMs Viability

5. Mounting Government Department Dues

• Government Departments/ Institutions are not making timely

electricity bill payments to DISCOMs Under RDSS, Prepaid Smart Metering
is to be implemented on all Govt.
Offices. Essential public services like
• As on 30th June 2022, the total outstanding Government hospitals, streetlights, and water
Department dues are estimated at INR 65,300 Cr., thereby works may be excluded.
impacting DISCOMs ability to make payments to GENCOs and
lenders

MoF has issued advisory on 20th Sep

• Out of this, the outstanding dues from ULBs and RLBs are INR 2022 to Finance Department of State
14,389 Cr. and INR 31,950 Cr. respectively – More than 2/3rd of the Governments to operationalize an
total Government dues appropriate mechanism for ensuring
timely payment of dues towards
electricity consumption of ULBs and
• As on 31st Jul 2022, total dues payable to EESL were INR 3,959 Cr. RLBs to DISCOMs.

Viability of DISCOMs 11
Factors affecting DISCOMs Viability

6. Inadequate Corporate Governance Practices in Distribution Utilities

• Corporatization alone in power sector has not led to advent of desired corporate governance practices in the
management of utility companies.
• Lack of desired corporate governance poses challenges in the form of inadequate control and strategic alignment
• The Guidelines cover a total of 37 Nos. of parameters for compliance by 44 State Owned DISCOMs

Status of Compliance (September 2022)

Compliance to % of parameters
Corporate Governance Parameters More than 70% 50% to 70% 20%-50% Less than 20%

2 DISCOMs 3 DISCOMs (JPDCL,

Compliance by DISCOMs 12 DISCOMs 22 DISCOMs
(DHBVNL, PSPCL) MePDCL, MVVNL)

Out of 44 State owned DISCOMs, 39 DISCOMs have submitted data while 5 DISCOMs (HPSEBL, MSPDCL, TANGEDCO,
MVVNL and PuVVNL) are yet to submit data
Viability of DISCOMs 12
 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
DHBVNL 81% 3% 3% 14%

PSPCL 75% 8% 17%

DGVCL 67% 8% 25%

MGVCL 67% 8% 25%

PGVCL 67% 8% 25%

UGVCL 67% 8% 25%

WBSEDCL 65% 14% 3% 19%

UHBVNL 64% 6% 3% 28%

TSECL 61% 6% 14% 19%

APEPDCL 57% 14% 8% 22%

DISCOM wise Overall Compliance

APSPDCL 57% 11% 3% 30%

UPCL 56% 8% 36%

Factors affecting DISCOMs Viability

CHESCOM 54% 14% 32%

APCPDCL 50% 11% 39%

AVVNL 49% 22% 16% 14%

Compliant
TSNPDCL 49% 5% 27% 19%

CSPDCL 47% 3% 50%

Partial
APDCL 47% 8% 3% 42%

JVVNL 47% 22% 3% 28%

MSEDCL 47% 53%

In Process JdVVNL 46% 22% 16% 16%

JBVNL 46% 54%

PaVVNL 44% 22% 33%

KSEBL 43% 3% 16% 38%

NBPDCL 46% 5%5% 43%

Non-Compliant

KPDCL 42% 56% 3%

TSSPDCL 41% 11% 11% 38%

MPPaKVVCL 39% 17% 11% 33%

MESCOM 39% 14% 6% 42%

6. Inadequate Corporate Governance Practices in Distribution Utilities (contd…)

GESCOM 39% 22% 39%

HESCOM 38% 24% 3% 35%

SBPDCL 41% 5% 54%

KESCO 36% 3% 3% 58%

MPPoKVVCL 32% 5% 62%

MPMaKVVCL 30% 19% 5% 46%

BESCOM 30% 8% 62%

The percentage of parameters on which a Discom is compliant/ non-compliant (as on Sep 2022) is as follows:

JPDCL 19% 6% 33% 42%

MePDCL 17% 3% 3% 78%

DVVNL 11% 8% 81%

Viability of DISCOMs
13
Key Impacts

Viability of DISCOMs 14
Key Impacts

1. Surmounting Genco Dues

• To tide over the liquidity crisis in the power sector, GoI announced Liquidity Infusion Scheme in the year 2021.
• Inspite of infusion of INR 1,11,823 Cr. as on Mar 2022 in 16 States through this scheme*, the total outstanding GENCO
dues stands at INR 97,927 Cr. as on 31st Mar 2022.
• As on 3rd Jun 2022 (Legacy Dues), the states have reported total dues to INR 1.38 lakh Cr. which includes dues from
state GENCOs and TRANSCOs of some states (INR 73,076 Cr.) to be payable by DISCOMs.
*As on date, total loan disbursed under LIS is INR 1,12,456 Cr. for 16 States
GENCO Dues (INR Cr.)
97,927
78,567 82,841
19,667
9,124 13,833
RE
37,390 43,380 56,564
IPP
CPSE
31,963 25,628 21,696

31st Mar 2020 31st Mar 2021 31st Mar 2022

Source: PFC
Viability of DISCOMs 15
Key Impacts

2. Accumulation of Losses and Erosion of Net Worth of DISCOMs

• As on 31st Mar 2022, the total accumulated losses of the DISCOMs were about INR 5,16,336 Cr.
• Five states (Tamil Nadu, Rajasthan, UP, MP and Telangana) contribute to more than ~73% of the total accumulated
losses.
• 11 States in the country have negative net worth as on 31st March 2021

Accumulated Losses and Net Worth

FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21

(62,248) (36,792) (44,160)

(103,569) (71,772)
(182,835)

(376,147)
(411,753) (431,059)
(478,153) (507,416) (516,336)
Accumulated Losses Net Worth
Source: PFC report on Performance of Utilities
Viability of DISCOMs 16
Key Impacts

3. Unsustainable Levels of Debt

• The total accumulated debt of all DISCOMs in the country were about INR 5,86,194 Cr. as on 31st March 2021
• Five states (Tamil Nadu, UP, Rajasthan, MP and Maharashtra) contribute to almost two-third of the total debt
• The increased debt burden has led to increased interest payment
• This increased interest payment by DISCOMs further lead to worsening of their ACS-ARR gap thereby creating a
vicious cycle or a “debt trap”
4. Impact on Consumer Services
• Shortfall in customer services: Inadequacy of funds required for necessary expenses of network O&M and customer services

• Diminishing reliability/ quality of supply: DISCOMs unable to seek financing causing deferral of network augmentation

• Higher interest costs: Increased cost of borrowing by DISCOMs burdens consumers in the form of increase in tariff

• Load shedding/ supply regulation: Inability to pay GENCOs in a timely manner leads to curtailment of supply

1st Consumer Service Rating of DISCOMs (CSRD): Out of 60 DISCOMs, only 2 DISCOMs are able to secure A+. 44 DISCOMs have
been rated B or below Viability of DISCOMs 17
Case Analysis of a DISCOM (Southern Region)

Particulars FY 23 FY 24 FY 25 FY 26 FY 27 FY 28 FY 29 FY 30
Total Revenue 79,869 78,149 87,812 90,944 98,175 1,06,011 1,14,485 1,23,650
Profit After Tax 467 (3,452) 2,132 1,473 5,384 9,060 12,868 16,969
Total Debt Service Requirement 23,853 23,605 23,557 23,327 22,779 21,993 19,303 18,703
Operating cash flows 17,281 13,070 19,374 18,237 22,655 26,789 31,190 36,069
Commitment under RDSS 3,280 3,343 5,191 432 0 0 0 0
Balance Debt Service
3,292 7,192 0 4,657 124 0 0 0
Requirement
Tariff Hike Required (%) 5.54% 9.70% 0.00% 2.10% 0.00% 0.00% 0.00% 0.00%

• Considering tariff hike of 4% every year over the new tariff for FY 2022-23 and 100% loss takeover from state
government, the DISCOM would still require a tariff hike of 5.54% in FY 2022-23 and a further tariff hike of 9.70%
in FY 2023-24 and 2.10% in FY 2025-26 to service debt obligations

✓ DISCOMs having high ACS-ARR gap would require steep increase in tariff Y-O-Y to address the deteriorating
financial health and unsustainable level of debt exposure
✓ Tariff hike Y-O-Y is imminent but would only suffice to maintain Business - As - Usual for DISCOMs. Despite
several initiatives by GoI, survival of DISCOMs is increasingly becoming questionable
Viability of DISCOMs 18
GOI Initiatives to address Viability
Issues of DISCOMs

Viability of DISCOMs 19
GOI Initiatives to address Viability Issues of DISCOMs

Standard Operating Standard Operating Procedures notified for:

Procedures (SOP) 1. 100% timely payment of Subsidy with correct subsidy accounting mechanism
a. Tariff determination and Subsidy declaration
b. Measurement of energy supplied to Subsidized categories
c. Subsidy billing and collection by DISCOMs
d. Reporting related
2. Automatic pass through of fuel adjustment cost to achieve financial
sustainability through elimination of ACS-ARR gap
3. No new creation of regulatory assets and treatment of outstanding
regulatory assets
4. Mechanism for 100% payment of Government department dues

Viability of DISCOMs 20
GOI Initiatives to address Viability Issues of DISCOMs

• RDSS would help DISCOMs improve their operational efficiencies and financial
Revamped sustainability by providing result-linked financial assistance to DISCOMs to
Distribution Sector strengthen supply structure based on meeting pre-qualifying criteria and
Scheme (RDSS) achieving basic minimum benchmarks – Prepaid smart metering, Loss reduction
and modernization works

• Aims to provide an option of redetermination and payment of all outstanding

Electricity (Late dues including late payment surcharge in equated monthly installments (EMI)
Payment Surcharge • Non-compliance of payments of EMIs, absence of Payment Security Mechanism
and Related Matters) (PSM) or advance payment triggers regulation of short-term access of power of
Rules 2022 defaulting entity and allow GENCO to sell power through Exchanges
• Mandates payment of current dues with 2.5 months from presentation date

• This allows additional borrowing space to State Governments, which is

conditional on them undertaking and sustaining specific reforms in the power
Additional Borrowing
sector
Scheme
• The additional borrowing limit permitted for power sector reforms is 0.5% of the
GSDP of the respective state
Viability of DISCOMs 21
GOI Initiatives to address Viability Issues of DISCOMs

• Provide right administrative support from State Governments

Corporate
• Undertaking better performance monitoring at senior management/ Board level
Governance
• Helps in taking sound decisions w.r.t. activities/ works required to be undertaken
Guidelines 2021
• Setting of accountabilities for performance improvement measures

• For sanctioning of loans to DISCOMs/ TRANSCOs/ GENCOs

Additional Prudential • Includes timely availability of audited annual accounts, timely filing of tariff
Norms petitions, timely issuance of tariff orders, determination of full cost tariff by
SERCs, timely release of subsidy by State Govt. etc.

• To tide over the liquidity crisis in the power sector, GoI announced Liquidity Infusion
Liquidity Infusion Scheme as a part of the Atma Nirbhar Bharat Abhiyan.
Scheme (LIS) • REC and PFC have sanctioned loans against an unconditional and irrevocable State
Government Guarantee. Total Disbursed: INR 1,12,456 Cr. for 16 States.

Viability of DISCOMs 22
GOI Initiatives to address Viability Issues of DISCOMs

• Provides performance-based incentives/ funding support to promote installation of

decentralized solar energy installations;
installations; Individual farmers will be supported to install
• Solarization of Grid-connected
standalone solar Agriculture
Agriculture pumps pumps
of capacity upand agriculture
to 7.5 HP. feeders are covered
PM KUSUM
• under the scheme.
Solarization of Grid-connected Agriculture pumps and agriculture feeders are also
• Individual farmers
covered under thewill also be supported to install standalone solar Agriculture pumps
scheme.
of capacity up to 7.5 HP.

• Study on Governance, Organizational Structure and Recruitment in DISCOMs.

•• Study on Organizational
Preparation of Standard Structure
Operatingand Recruitment
Procedure in DISCOMs.
for O&M of assets in DISCOMs.
•• Preparation
Advisory toofStateStandard Operating Procedure
Governments for O&M
for ensuring timelypractices
payment in DISCOMs.
of dues towards
• Advisory
electricitybyconsumption
MoF to StateofGovernments
ULBs and RLBsfor
toensuring
DISCOMstimely payment of dues towards
• electricity
Consumerconsumption of ULBs
Service Rating and RLBs (CSRD)
of DISCOMs to DISCOMs
of DISCOMs has been initiated to
Other Initiatives
• Consumer Service Rating
report performance of DISCOMs
of DISCOMs (CSRD) of of
on key parameters DISCOMs
consumer has been initiated to
services
• report performance
10th annual of DISCOMs
integrated ratings on
of key parameters
DISCOMs of consumer
was recently services
launched with a higher
• 10th annual
emphasis integrated
on financial ratings of DISCOMs
performance. Ratings willwas
nowrecently launched
be dynamic with a higher
in nature
emphasis on financial performance. Ratings will now be dynamic in nature

Viability of DISCOMs 23
Way Forward

Viability of DISCOMs 24
Way Forward

Roles and Responsibilities of State Government

Timely payment of correct subsidy amount:

• Provide transparent electricity tariff subsidy to consumers instead of revenue gap financing
• Better targeted subsidy schemes to only needy/ marginalized recipients
• Better tariff design for subsidized categories
• Adequate State Government budgetary provisions for committed subsidy
Timely payment of electricity dues by Government Departments
• Implementation of prepaid smart metering for all Government offices. Emergency public
services like hospitals, waterworks and street lighting may be excluded.

Independent and fully functional SERCs

Listing of DISCOMs in the stock exchange

Viability of DISCOMs 25
Way Forward

Roles and Responsibilities of DISCOMs

Compliance to SOP

Timely payment of GENCOs dues

Ensuring effective Corporate Governance in DISCOMs

Timely publishing of quarterly and annual accounts

Timely filing of Tariff Petition and True up Petitions

Proper Asset management

Prepaid Smart Metering is to be implemented on all Govt. Offices. Essential public services like hospitals,
streetlights, and water works may be excluded

Viability of DISCOMs 26
Way Forward

Roles and Responsibilities of SERCs

Timely issuing of Tariff Orders and True-up Orders

Determination of Full Cost recovery tariff without subsidy and sufficient RoE

No regulatory assets/ revenue gap to be created

Automatic Fuel Cost Adjustment

Limiting Cross subsidy as per extant policy

Viability of DISCOMs 27
Thank you

Viability of DISCOMs 28