The USD 41 billion plan intends to trim electricity losses, gradually narrow discoms’ cost-revenue gap, improve the reliability and quality of power supply, and promote more sustainable competition.
February 2, 2021
The Government of India’s plan to improve the operations and finances of state-owned distribution companies (discoms), the weakest link in India’s power supply value chain, will help mitigate cash flow stress observed in rated power generation companies over time, according to Fitch Ratings.
As reported in a leading daily, government’s USD 41 billion plan intends to trim electricity losses, gradually narrow discoms’ cost-revenue gap, improve the reliability and quality of power supply, and promote more sustainable competition in the sector through 2024-25.
It added that while renewable players benefit from the “must-run” status in India, thermal power plants have suffered part curtailment and lower capacity utilization driven primarily by stressed discoms, which are unable to buy electricity because of their weak financial positions.
The pandemic has aggravated the discoms’ difficulties due to the fall in electricity demand from higher-paying commercial and industrial customers, payment concessions, and delay in cash collections. The government’s liquidity support through INR 1.2 lakh crore of conditional concessionary loans alleviated the situation.
Union Budget 2021: Wire and Cable Industry Views.
The extended payment cycles of discoms put pressure on the working capital of generation companies, weakening their cash flows available for debt servicing. Discoms have also tried to renegotiate power purchase agreements to capitalize on falling solar and wind tariffs.
