Structural improvements and financial discipline are far more crucial for improving the health of distribution companies than depending on tariff hikes, rating agency Care has said. According to a Care report, which analyzed 30 Discoms in 11 states, a series of tariff hikes had been effected by these companies in the last three years.
"Tariff hike alone can't bailout the Discoms given that there are substantial regulatory assets on their balance sheets," Care Rating said in a report.
The report also said that apart from untreated gap which has left tariffs far from being cost reflective, unsustainable levels of cross-subsidization with a slowdown in high paying subsidizing consumers like commercial and industrial sector and emergence of group captive model wheeling away high paying consumers, have further impacted their financial health. The report observed that total power demand has tapered this fiscal so far with a slowdown in growth and delay in restructuring state Discoms.
According to the study, demand for power grew by only 1.7 per cent in September compared to year-ago period, led by off-take back-down by Discoms coupled with continuing load shedding in tier 2-3 cities in northern and southern region.
"For demand to improve, there is a need for companies to go slow on implementing financial restructuring package, buying power from the open market and entering into fresh long-term power purchase arrangements by inviting case-I/II bids," it said.
