Amid COVID lockdown, Discoms bill collections will be hit: Ind-Ra

Ind-Ra expects payments to gencos remain uneven even after June 2020, based on the collection ability of the discoms. The overall situation could result in leverage increasing across the sector because of an increase in working capital borrowings.

Ind-Ra had earlier stated its opinion that the pandemic could lead to the thermal plant load factor (PLF) falling below 55 per cent for FY2021, closer to the technical minimum standards, on account of a gradual ramp-up in industrial load and the already muted electricity demand witnessed in the pre-COVID scenario.

In its report on Thursday, the agency said it believes that discoms are likely to defer the payments to the gencos during 24 March 2020-June 30, 2020, which would offer considerable relief to the former, given the sudden drop in power demand.

The power purchase cost, which accounts for 60-70 per cent of the revenue, is the largest cost for the discoms; hence, a deferment in the same would enhance their liquidity at a time when collections are dwindling, as most discoms do not have a large percentage of online collections.

Discoms are, however, expected to make payments to the gencos on a best effort basis after meeting their operating expenses. Like the gencos, discoms too have opted for moratoriums to avoid defaults in case of any cash flow mismatch, it added.

It said that in the current scenario, there is limited possibility of a tariff hike by discoms. This coupled with lower-than-expected volume sales could lead to discoms witnessing cash flow mismatches and fresh creation of regulatory assets.

Ind-Ra also highlighted that a low plant capacity utilisation for the plants under long-term PPAs would result in an overall increase in the tariff because the fixed cost recovery is linked to the plant availability factor.