Experts seek reassessment of Power Finance Corp’s annual discoms rating

Source: Down To Earth

Relevance – Healthy condition of discoms is necessary for ensuring proper electricity supply.

Synopsis: Energy experts have urged a reassessment of the Integrated Ratings for State Power Distribution Utilities being carried out on an annual basis since 2012 by the Power Finance Corp Ltd(PFCL).

Background:

• Recently, the Integrated Ratings for State Power Distribution Utilities has been released. It rated the creditworthiness of electricity distribution companies or discoms by calculating whether money lent to them can be recovered promptly or not.
• The report has found that just five of the 41 distribution companies in the country are profiting / will be profitable and worthy of trust for the repayment of a loan.
• These five distribution companies are supplying electricity to people in Gujarat (four of the five companies) and the southern parts of Haryana.

What are the problems with the ratings?

• Firstly, the ratings have not led to, much reforms on the ground. Despite being rated poor, loans and finances have been arranged and weak discoms have survived a decade.
  • Example: Tamil Nadu electricity distribution company always fares poorly in the exercise. But it has been arranging loans to support its existence.
• Secondly, the ratings should be such where all stakeholders can understand the true picture. This is not happening because the underlying data is not being released which would have allowed people to make their own analysis.

Financial Position of State Power Distribution Companies: The financial position of State distribution companies has deteriorated. The cumulative losses of discoms stand at Rs 38,000 crore in the financial year 2020. Some key reasons for this include:

• Free electricity distribution policies by the states to residents and farmers, with no reimbursement to discoms
• State politicians’ pressure on the electricity regulatory commissions to not hike electricity tariffs to customers
• Electricity thefts
• Technical losses.

Way Forward:

• Three committees headed by Montek Singh Ahluwalia, V K Shunglu and B K Chaturvedi, have been formed since 2001 to chart a profitable way forward for discoms.
• The key recommendation has been to make the activity a business by improving operational and financial efficacy, and not treat distribution business as a public welfare measure.