In an unexpected positive development for the renewable sector, DISCOM dues have been coming down steadily over the last seven months. PRAAPTI portal, maintained by the Ministry of Power, reports DISCOM overdues (amounts outstanding past their due date) coming down from INR 1,367 billion in July 2022 to INR 288 billion at present, a fall of 79%. The fall is seen across multiple states including the ones with the most notorious payment record (Tamil Nadu, Andhra Pradesh, Rajasthan, Uttar Pradesh).
The most surprising element of improvement is what has led to it. The two fundamental policy initiatives aimed at reforming distribution business – Electricity Act amendments to delicence distribution and RRLSDS scheme to upgrade the physical network – are still stuck or in early stages of implementation. Instead, it is the short-term pressure tactics of central government that have borne surprise results. The new Electricity Rules, effective since July 2022, allowed the DISCOMs to clear their overdues in equal monthly instalments spread over 1-4 years with funding assistance from central-government owned financial institutions. DISCOMs failing to make monthly payments on time were threatened with ban on procurement from inter-state power projects as well as short-term open access and exchange markets. In August 2022, 27 DISCOMs across 13 states were restricted from buying power on the exchanges after missing the first payment date, but the list was reduced to only four DISCOMs the next day after overnight payments.
PFC and REC have together sanctioned and disbursed debt totalling INR 1,028 billion and INR 280 billion respectively to DISCOMs in 13 states as of December 2022 (Andhra Pradesh, Bihar, Chhattisgarh, Jammu & Kashmir, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Tamil Nadu and Telangana).
Figure: DISCOM overdues, INR billion
Source: PRAAPTI portal
Note: PRAAPTI portal data, collated using voluntary information provided by IPPs, is not complete. Total DISCOM overdues are estimated to be about 50% higher as per PFC reports. Data excludes overdues converted in equal monthly instalments.
Total overdues of solar project developers are estimated to have come down from a peak of about INR 135 billion in July 2022 to INR 35 billion at present. All publicly listed IPPs have reported significant improvement in receivables position. ReNew reported a 30% YOY reduction in receivables position to 178 days by December 2022. Adani reported similar progress in payments from Tamil Nadu, Madhya Pradesh and Karnataka. According to a CRISIL estimate, receivable days for leading developers, accounting for about 50% of total renewable capacity, are expected to reduce from 180 days currently to 140 days by March 2024.
It is still early days but resolution of DISCOM dues is great news overall. The payments and liquidity crisis facing IPPs has been averted for now. Preliminary estimates for FY 2022 also suggest encouraging reduction in AT&C losses and ACS-ARR gap to 17% and INR 0.22/ kWh from 22% and INR 0.69/ kWh respectively a year ago. However, there have been multiple instances in the past of temporary progress after announcement of short-term financial packages only for the problem to get worse again. Lack of a clear roadmap to reform the distribution business remains a concern but nobody will complain if the central government can enforce discipline through indirect measures.
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