August 28, 2013
Subsidies for state-run power distribution companies are projected to rise to Rs 60,000 crore by the end of this fiscal even after benefits from financial restructuring, says a research report.
Besides, the power sector remains increasingly vulnerable to both the rupee-dollar exchange rate and international coal prices mainly due to rising dependence on overseas coal to fire generation plants, rating agency ICRA said in its report.
ICRA said that it expects “the overall absolute level of subsidy dependence for power distribution companies (discoms) on an all-India basis to increase to estimated Rs 60,000 crore for the 12-month period ending March 31, 2014.” The government is implementing a financial restructuring package for discoms in the wake of their precarious financial condition, which has also raised concerns of defaults.
A key reason for the poor financial health of discoms is the mismatch between the cost of generation and the rate at which electricity is supplied.
The projected Rs 60,000 crore subsidy comes even after the implementation of the restructuring package and anticipated improvement in overall cash flow/liquidity profile of utilities over the next 2-3 years.
State Electricity Regulatory Commissions (SERCs) have approved the higher costs on account of increases in power purchase and other fixed expenses.