The Reserve Bank of India has stressed the need for the State government to take necessary steps for the turnaround of the distribution companies (Discoms) and eliminate the revenue gaps in a time-bound manner.
In its recent report on the States’ Finances, the RBI said the reduction in revenue from grants to Discoms in the years 2018-19 to 2020-21 could potentially increase the losses of Discoms, particularly in five States, including Telangana. This could entail significant fiscal outgo with a greater share of these losses mandated to be funded by the States. “This makes it incumbent upon the States to take the necessary steps for the turnaround of Discoms and to eliminate revenue gaps in a time-bound manner,” the report said. Uttar Pradesh, Jharkand, Rajasthan and Andhra Pradesh are the other States quoted in the study.
The Central Bank’s study expressed concern that off-budget liabilities in the form of guarantees like Ujwal Discoms Assurance Yojana (UDAY) are mutating into a contingent risk to debt sustainability even as structural bottlenecks in power distribution continue to foster. Going forward, States might have to take over higher losses of Discoms if they do not show a turnaround in their financial performance and this would inevitably take its toll on debt sustainability in the medium term.
Disclosure of liabilities
Transparency in the disclosure/reporting of these liabilities in the State budgets could be the first step towards recognizing these guarantees as a medium-term fiscal risk. This should be followed by conscious efforts to keep them at prudent levels while ensuring that they were not invoked.
“While the impact of UDAY on State finances from interest payments and redemptions is predictable, the impact of future losses takeover is inherently uncertain as it is dependent upon the realized financial performance of the Discoms,” the study said adding the State governments are mandated to fund progressively greater share of Discoms’ future losses from their own finances and prevent ballooning losses on their books.
The RBI study comes in the light of the recent quarterly report issued by the Ministry of Power which said the two Discoms of Telangana have yet again failed to reach the targets given by the Union Ministry in improving their performance, particularly in reducing technical and commercial losses and bridging the gap between the average cost of energy supply and realization of revenue.
On course
TS Transco and Genco Chairman D. Prabhakar Rao, however, said the distribution companies were on course of reducing their losses as mandated by the Union Ministry. While the Ministry of Power fixed a target of bringing down technical and commercial losses to below 13%, the losses reported by the State utilities were less than 12%.
“We are totally complying with the Power Ministry’s guidelines and there are no complaints regarding Telangana power utilities in the monthly reviews being conducted by the Union Ministry so far,” he told The Hindu . In respect of the repayment of ₹ 8,900 crore debts taken over by the State government, he said there was no cause of concern as bonds with a repayment period of 10 years had already been issued.
