KSEBOA - KSEB Officers' Association

Credit rating agency Icra has warned that power distribution companies' overall subsidy dependence could rise in FY15 as states will likely avoid a sharp tariff hike in an election year despite increase in power purchase costs for discoms. In such a scenario, discoms could face cash-flow problems and there could be issues related to compliance with the financial restructuring package (FRP) if subsidy payment is delayed by state governments.

According to the Icra estimate, state governments' subsidy liabilities to the power sector will be at R60,000 crore in FY14. While discoms in states like Andhra Pradesh, Gujarat, Odisha and Uttarakhand have sought tariff hikes of 15-26% in their ARRs filed for FY15, those in Haryana, Punjab, J&K and MP have not raised any such demand. "With rising subsidy dependence, the timeliness and adequacy of subsidy support remains extremely crucial for discoms from their cash flow perspective," Icra said.

It added: "The cost-reflective nature of tariff determination as well as time-bound recovery of the regulatory assets by state electricity regulatory commissions remain to be seen, especially for utilities that have now projected a significant revenue gap, either with limited or without any proposal for a tariff revision for FY15. Further, any non-adherence of the conditions, especially related to subsidy payout by state governments, as well as timeliness in filing of tariff petitions & tariff determination by SERCs as agreed in the terms of FRP will remain a serious concern for the sector."

Source - financial Express