Three southern states — Tamil Nadu, Andhra Pradesh and Telangana — that have strong renewable energy capacity account for about 71 per cent of outstanding dues from power distribution companies (discoms) to renewable energy producers.

The country-wide overdue of conventional generators amounted to 1,065 billion in July 2020, whereas 103 billion is overdue to renewable power generators, said a report of JMK Research & Analytics, quoting PRAAPTI (Payment Ratification and Analysis in Power procurement for bringing Transparency in Invoicing of generators) portal of the Union Power Ministry.

Piling overdue and payment delays can render the renewable projects unviable, which are already facing other risks such as tariff renegotiation, which may deter lenders who are cautious about committing funds to such projects, potentially driving up the finance cost. This vicious cycle can seriously hurt the renewable sector, the report warned.

The major problem with discoms, despite various steps taken, is revenue deficit. The cost of power procured by a discom is generally higher than the tariff charged to consumers. The main causes for this include technical losses during transmission, less average revenue realised due to lack of effective billing procedures, lack of proper recording of power consumption and power theft.

The tariff structure is also not rationalised, where commercial and industrial (C&I) consumers bear the brunt of cross-subsidy of residential and agriculture segments.

These inherent flaws plague the discoms, thereby rendering them unsustainable. Unless the underlying issues are addressed with the support of Central and various State governments and necessary reforms are bought in, there been a need for another bailout package soon.

In 2015, the Centre launched Ujwal DISCOM Assurance Yojana (UDAY), wherein financial and technical targets were given to States. The States took over 75 per cent of the debt of the discoms and issued bonds that were subscribed to by banks and financial institutions. But the condition of discoms has remained the same — debt-ridden.

Liquidity infusion

In May 2020, the government announced liquidity infusion to the extent of 900 billion through the Power Finance Corporation and the Rural Electrification Corporation (PFC-REC) to help cash strapped discoms pay their dues till March 2020. Now, the Centre is set to hike this to 1,200 billion to help discoms pay their outstanding bills until June 2020. Though this move has been welcomed by various stakeholders, it does not provide a long-term solution.

Infusion of one-time liquidity cannot ensure the improved effectiveness of discoms in the longer run. Several past instances of liquidity infusion have done little good to improve the financial health of discoms, the report said.