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Key Points

Indian state power distribution companies (discoms) are projected to reduce their operational losses by a third in FY26. This improvement is primarily due to increased operational efficiency, tariff hikes in key states, and a reduction in average power purchase costs. Despite these advancements, discoms still heavily depend on state subsidies and face risks from increased renewable energy adoption. The report by Crisil Ratings highlights that though debt levels are rising, credit metrics show signs of improvement.

Key Points: Indian Discoms to Cut Operational Losses by a Third in FY26

  • Operational losses to fall from Rs 12,000-15,000 crore to Rs 8,000-10,000 crore
  • Tariff hikes and reduced power purchase costs drive improvement
  • Continued reliance on state subsidies remains a challenge
  • Open access renewable energy procurement presents risks
3 min read

Indian discoms' operational losses to be reduced by a third in FY26: Report

Indian discoms' operational losses to decrease by a third in FY26, thanks to improved efficiency and tariff hikes.

"Narrowing operating losses have slowed the pace of debt addition for discoms. - Crisil Ratings"

New Delhi, Sep 29

State power distribution companies (discoms) will see their operating losses reduce by a third to nearly Rs 8,000-10,000 crore this fiscal (FY26) 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) would 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, with the overall debt burden remaining high and further improvement in average revenue realised (ARR) will be required to reach a higher level of cash accruals to service debt.

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

"For this fiscal, the operating gap is expected to 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.

The improvement this fiscal will be driven by approved tariff hikes in 4 of the 11 states in our sample set, and the removal of compensation cess on coal as part of the goods and services tax (GST) rationalisation, which will bring down the APPC by 4-6 paise per unit, he added.

The improvement in the operational efficiency is reflected 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 upgradation, including replacement of conductors and transformers, feeder segregation and putting cables underground, the report stated.

Over the past five fiscals, the operating gap has narrowed steadily, driven by a 110 paise per unit increase in ARR on account of higher subsidy realisation and the 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 improvement in operational efficiency, as reflected in 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 increase 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

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Reader Comments

P
Priya S
While the reduction in losses is positive, I'm concerned about the tariff hikes mentioned. Many middle-class families are already struggling with rising costs. Hope the benefits reach consumers too.
M
Michael C
The improvement in AT&C losses from 19% to 15% is impressive! Shows that proper infrastructure investment can make a real difference. Hope this trend continues across all states.
A
Ananya R
Rs 6.7 lakh crore debt is still massive! While operational improvements are good, the fundamental issue of discoms' financial health remains. Need more structural reforms to make them truly sustainable.
S
Sarah B
The shift to renewable energy integration is a positive sign for India's green energy transition. Lower AT&C losses and better operational efficiency will help accelerate this shift. Good progress! 🌱
V
Vikram M
In our state, we've actually seen improvement in power supply quality over the last year. Less voltage fluctuations and fewer power cuts. Glad to know it's part of a larger national trend.

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