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Discoms’ Subsidy Dependence To Increase Rs 810 Billion In FY18

Punjab and Madhya Pradesh are likely to witness a sharp increase in the subsidy support of 29 per cent and 49 per cent respectively

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In already debt-laden power sector, the dependence of the state- owned power distribution utilities, DISCOMs, on the subsidy is likely to increase by 7-8 per cent and reach to a whopping number of Rs 810 billion in FY 2018, compared to the previous fiscal.

According to the study by ICRA, Punjab and Madhya Pradesh are likely to witness a sharp increase in the subsidy support of 29 per cent and 49 per cent respectively. This reflects the high dependence of the states on the subsidies to close their revenue requirement, rather than operational efficiencies.  

Furthermore, the dependence on subsidy support for Discoms in the other states such as Andhra Pradesh, Bihar, Gujarat, Karnataka, Haryana, Rajasthan, Tamil Nadu and Telangana would continue to be significant, ranging between 11-29 per cent of the overall revenue requirement across the states.

The overall subsidy requirement is further estimated to constitute around 17-18 per cent of the revenue requirement approved or estimated for the utilities.

“The increase in the subsidy requirement for FY2018 over the previous year is predominantly driven by first, the subsidy and concessional tariff announcements in states during the pre-election period and continuation of subsidised nature of power tariff by state governments for certain consumer categories, even in case of upward revision in tariff by State Electricity Regulatory Commission (SERCs)”, notes Sabyasachi Majumdar, Group Head & Senior Vice President, ICRA Ratings.

The subsidy burden for the Discoms is increasing due to higher costs and cheaper tariffs, especially for the farm sector. The Discoms suffer from the fundamental problem of under-pricing with their selling price, set significantly lower than the procurement price of the electricity.

He further adds that the timelines and adequacy of the subsidy support from the respective state governments are critical from the liquidity perspective of the Discoms.

Citing the example of the proposed Direct Benefit Scheme in Bihar, he says that the scheme would reduce the direct state subsidy dependence of the Discoms, given sustained and timely collections from the subsidised category of consumers for power sold at revised tariff (which will be higher than the earlier subsidised tariff) under the DBT mode.

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