Revenue gap of discoms rises to 88,720 crore in June

NEW DELHI: Regulatory assets – broadly tariff losses booked as receivables – of distribution companies (discoms) have cumulatively risen to Rs 88,720 crore as of June 30, available government data show, underlining the fact that the financial woes of the utilities run deeper than their outstanding dues from state governments.
Industry players said it is just the tip of the iceberg as the government data logs the amount recognised by state regulators. The actual amount could be in excess of Rs 1 lakh crore as claims are tied up in legal knots at the appellate level or in higher courts. For example, as per the government data, Delhi’s tariff regulator has recognised regulatory assets of Rs 8,954 crore for the three discoms operating in the national capital. But executives said the assets will be substantially higher if the orders of appellate body and courts are added.
Regulatory assets are generated when state regulators accept that tariffs do not cover a discom’s power procurement cost but do not raise rates to the desired level, mostly under pressure from state governments that appoint them. The revenue gap between the cost of procuring and supplying power, which widens due to systemic inefficiencies, is then classified as regulatory asset.
These make discom books look good on paper. But in reality, a Niti Ayog-Rocky Mountain Institute India report last year said, “regulatory assets create cash-flow problems for discoms, forcing them to borrow funds to cover the revenue deficit. The additional borrowing, coupled with the interest, adds to the burden of discoms”.
Consumers too pay the price as regulators often allow a surcharge to be levied in a bid to cover their failure to allow tariffs to reflect costs under political pressure.
Regulatory asset is part of the “freebie culture” — which also includes not paying subsidy on time and unpaid bills of government bodies, which amounted to Rs 1.39 lakh crore as of March 31 – that Prime Minister Narendra Modi in July said was primarily responsible for the poor financial health of discoms.
Industry executives described regulatory assets as passing the present liability on to future generations and could lead to tariff shock. “The appellate tribunal had earlier ruled that regulatory assets must be recovered over three years. However, the magnitude of the assets could cause a major tariff shock,” the Niti-RMI report said.

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