New Delhi, Sep 29 (NationPress) State power distribution companies (discoms) are projected to reduce their operating losses by a significant one-third, bringing them down to approximately Rs 8,000-10,000 crore in the current fiscal year (FY26), compared to an estimated Rs 12,000-15,000 crore in the previous fiscal year, according to a report released on Monday.

The anticipated improvement is attributed to enhanced operational efficiency, approved tariff increases in several key states, and a slight decrease in the average power purchase cost (APPC).

Crisil Ratings highlighted in its report that narrowing operational losses have decelerated the rate of debt accumulation for discoms, resulting in some enhancement of their credit metrics.

Nevertheless, these companies still rely heavily on state subsidies, with their overall debt burden remaining substantial. A further increase in the average revenue realized (ARR) is essential to achieve higher cash accruals for debt servicing.

Moreover, discoms face risks due to the growing trend of commercial and industrial (C&I) users adopting open access for procuring renewable energy.

“For this fiscal year, the operating gap is expected to shrink to 5-10 paise from 12 paise in the previous fiscal and significantly below the 60 paise reported in FY20,” stated Manish Gupta, Deputy Chief Ratings Officer at Crisil Ratings.

This fiscal improvement is expected to be driven by approved tariff hikes in four out of the eleven states in the sample set, alongside the removal of the compensation cess on coal as part of the Goods and Services Tax (GST) rationalization, which is projected to lower the APPC by 4-6 paise per unit.

The enhancement in operational efficiency is evident, with aggregate technical and commercial (AT&C) losses decreasing to 15 percent in the previous fiscal year, down from 19 percent in FY20.

This progress follows ongoing investments in infrastructure upgrades, including conductor and transformer replacements, feeder segregation, and underground cabling, as stated in the report.

Over the last five fiscal years, the operating gap has consistently narrowed, driven by a 110 paise per unit increase in ARR due to higher subsidy realization and the adoption of a fuel and power purchase price adjustment mechanism by certain states.

Meanwhile, the average cost of supply (ACS) has risen more slowly, by 65 paise per unit, due to improvements in operational efficiency, as reflected by lower AT&C losses and greater integration of economically favorable renewable energy sources.

Gautam Shahi, Director at Crisil Ratings, noted, “Although the debt of the thirty state discoms is projected to 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 FY20, their interest coverage ratio is expected to improve to 1.3 times from 1.2 times last fiscal and 0.2 times in FY20.”