Put simply, PFC’s worth is only as good as New Delhi’s sovereign weight. This is ironic because India’s tottering utilities have not only put the health of generators at stake but also the well-being of India’s biggest power sector lender, principally on account of their politically-directed under-recoveries from certain consumer segments.
That will be tough. Estimated aggregate technical and commercial (AT&C) losses for FY2022 for the key 10 states (comprising 70 per cent of India’s power demand) was 20.7 per cent, according to CRISIL Research. Of these, the worst performing states are Madhya Pradesh and Uttar Pradesh with around 30 per cent AT&C, Gujarat and Karnataka being the best. Globally, most efficient power distribution systems have AT&C losses of 6-8 per cent.
“Significant capex is required to improve billing, collection efficiencies, and reduction in technical losses. The timeline could be three to five years for AT&C loss to fall below 15-20 per cent,” Divya Charen, associate director, India Ratings & Research, said. The effective implementation of RDSS is key, she added. The RDSS is a results-linked scheme that, among other things, aims to reduce AT&C losses to 12-15 per cent by 2024-25, and eliminate utilities’ dues.
That still leaves PFC with weak assets on its books, even if some carry sovereign guarantees. Arthur D Little’s Singh suggested the creation of a stressed asset company to take over and run the operations of the most underperforming discoms. “This can be done via collaboration with strategic investor partners,” he said.
Whatever the options, the bottom line is that states need to make electricity reforms work. “Given the concurrent nature of electricity in our Constitution, the states must come on board for effective implementation of reforms in the distribution segment,” said Vikram V, vice-president and sector head - corporate ratings, ICRA. “A strong political will is needed at the state level to achieve this objective,” he added. Indeed, PFC’s future depends on this resolve.
DEBT WISH
- PFC on a consolidated basis carries a loan exposure of around Rs 7.6 trillion
- It bailed out New Delhi by buying the Centre’s stake in REC for Rs 14,500 crore in 2019, shoring up disinvestment receipts
- Most of its exposure lies in the government sector, with nearly 60 per cent towards distribution, an inherently weak business
- State utilities already have over Rs 1.3 trillion in outstanding towards power generators
- Most of PFC’s exposure to generators are in coal-fired power, a sunset business globally
- PFC is the nodal agency for administering New Delhi’s latest initiative to reduce losses in distribution under a Rs 3.04-trillion package, taking on more risks on its books
- The provision coverage ratio or the percentage of funds set aside for losses due to bad debts trebled to 69 per cent last fiscal year, from 23 per cent in FY18, indicating the risks inherent in India’s fast growing, but financially unstable, power sector
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