If the economic activities continue to get impacted for the next four months amid COVID-19 crisis, the regulatory assets of power discoms will increase to up to Rs 90,000 crore, which will then have to be recovered from consumers, an industry expert has said.
Regulatory assets in the power sector include previously-incurred losses that are in the nature of deferred expenditure and can be recovered from consumers in future provided allowed by regulatory authorities.
"Everyone talks about 25-30 per cent dip in demand, but what constitutes behind that is nearly 80-82 per cent is decline in demand from the commercial sector and there is a rise in domestic consumer demand which is subsidised," Adani Transmission CEO Anil Sardana said during a webinar organised by Care Ratings.
Whereas the industrial and commercial are the subsidising customers, he said adding that therefore, subsidising revenue has gone down while the subsidised customers are high.
According to him, if the situation continues for two months, there will be nearly Rs 30,000-40,000 crore worth of regulatory assets.
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"However, if this continues for four months which is estimated in terms of demand at least, because the industry will actually take time to start to consume as much, that (regulatory assets) would be Rs 80,000-90,000 crore, which is going to reflect in the ARR of the discoms as regulatory assets," he said.
Sardana further said that this means a tremendous amount of carrying cost over the next 4-5 years and consumers will see regulatory asset surcharge, and tariffs will have to be paid along with carrying cost which will be a steep burden on customers.
"The government has announced a Rs 90,000 crore credit line to fund discoms afresh, but what is important is to revive the economy. And for this, the government will have to address key issues of the construction, labour and logistics sectors," Sardana added.
He further said that there are thousands of crores of rupees with the government agencies stuck in arbitration which they need to release to ensure that the construction industry survive as liquidity is a key challenge.
"Liquidity crisis is not a pandemic related situation but has been impacting the sector even before that. Instead of giving stimulus package, we want the government to at least release the amount stuck in arbitration," he added.