Lockdown to balloon discom losses, electricity demand to fall in decades

One month of nationwide lockdown has done more damage to the power sector than what mismanagement by state utilities failed to do in years.

The Covid-19 outbreak and the subsequent lockdown has squeezed power demand sharply in March and April and the fall has been so sharp that demand for full year 2020-21 is set to report a 1 per cent decline, first time in almost 36 years.

Not only this, with anticipation that the lockdown may continue in large parts of the country beyond May 3, the discoms are set to return to yesteryears of adding losses after losses every year, making their operations unviable. An extension of the lockdown would impact the demand further.

“This aspect is not coming out clearly, but the lockdown has reduced industrial consumption of electricity, resulting in a sharp fall in demand. Also, as industrial consumers account for bulk of discoms' earnings and help subsidise tariff for households and agricultural consumers, their loss is set to balloon in FY21,” said a former CERC chairman who asked not to be named.

The demand squeeze of 1 per cent is based on the assumption that while there is full lockdown till May 3, there may be a partial lifting of lockdown in the non-red zones in May and June 2020 and resumption of full operations by industrial and commercial establishments from July 2020.

According to an analysis done by ICRA, an unit of ratings agency Moody's, the expected losses at state-run electricity distribution utilities (Discoms) would rise two-thirds to Rs 50,000 crore in FY21 with an addition of Rs 20,000 crore in book level losses in the current year itself.

Discoms have already been reeling under low demand conditions for some time and this has impacted their revenue and ability to service payment dues to generators.

Accordingly, the debt-laden Discoms' overdue payment to electricity generators had risen to over Rs 80,000 crore at the end of February 2020, more than 50 per cent higher compared to the same period last year.

What has added to the problems of discoms is that lockdown has resulted in consumption decline from the high tariff paying industrial and commercial consumers (tariff almost twice that for households) and the likely delays in cash collections from other consumer segments.

This is likely to increase the book loss level for the discoms at the all-India level by Rs 200 billion in FY2021, with further downside risks arising from any extension in the lockdown period and any delay in issuance of tariff orders or inadequate tariffs approved by the state electricity regulatory commissions, ICRA said in its report.

“Any extension in the lockdown period would have further downside risk for the demand growth. The decline in demand is expected to suppress the thermal PLF on an all-India level to about 54 per cent in FY2021 against our earlier estimate of 60 per cent and from about 56 per cent in FY 2020,” said Sabyasachi Majumdar, Group Head and Senior Vice President, corporate ratings, ICRA..