Indian Discoms Operational Losses to Fall by a Third FY26

Indian Discoms Operational Losses will shrink by a third in FY26, as state power distribution companies (discoms) aim to cut operating losses to nearly Rs 8,000–10,000 crore from an estimated Rs 12,000–15,000 crore last fiscal, a report said on Monday.

Improving operational efficiency, approved tariff hikes in some key states, and a slight moderation in the average power purchase cost (APPC) will drive the development.

“Narrowing operating losses have slowed the pace of debt addition for discoms, leading to some improvement in their credit metrics,” Crisil Ratings said in its report.

However, their dependence on state subsidies continues, and the overall debt burden remains high. Discoms must improve average revenue realised (ARR) further to generate higher cash accruals for servicing debt.

Moreover, discoms face risks from the increased adoption of open access for procuring renewable energy by commercial and industrial (C&I) users.

“For this fiscal, the operating gap will narrow to 5-10 paise from 12 paise in the last fiscal and well below the 60 paise in fiscal 2020,” said Manish Gupta, Deputy Chief Ratings Officer, Crisil Ratings.

Approved tariff hikes in 4 of the 11 states in our sample set and the removal of compensation cess on coal as part of GST rationalisation will drive the improvement, bringing down APPC by 4-6 paise per unit, he added.

Improved operational efficiency reflects in the reduction of aggregate technical and commercial (AT&C) losses to 15 per cent last fiscal from 19 per cent in fiscal 2020.

This follows continued investments in infrastructure upgrades, including replacement of conductors and transformers, feeder segregation, and underground cabling, the report stated.

Over the past five fiscals, the operating gap has narrowed steadily, driven by a 110 paise per unit increase in ARR because of higher subsidy realisation and adoption of the fuel and power purchase price adjustment mechanism by some states.

The average cost of supply (ACS) has risen more slowly, by 65 paise per unit, because of operational efficiency gains, lower AT&C losses, and increased integration of relatively economical renewable energy.

Gautam Shahi, Director, Crisil Ratings, said, “Although the debt of the 30 state discoms will rise to Rs 6.7–6.8 lakh crore this fiscal from Rs 6.5 lakh crore last fiscal and Rs 4.0 lakh crore in fiscal 2020, their interest coverage will improve to 1.3 times from 1.2 times last fiscal and 0.2 times in fiscal 2020.”

–IANS