GST reforms to significantly benefit state discoms: Report

New Delhi, Sep 16
The Goods and Services Tax (GST) reforms will significantly benefit the state-owned power distribution companies (discoms), a report said on Tuesday.

The tariff hike implemented by discoms at 1.9 per cent in FY26 is not sufficient to meet the debt, the ratings agency ICRA said in the report, adding that the GST reforms will bring some relief.

The all-India average cost of supply to average revenue realised (ACS-ARR) gap, stood at 46 paise per unit, necessitating a 4.5 per cent tariff increase and reduced Aggregate Technical & Commercial (ATC) losses to bridge the gap, it said.

The regulatory assets -- unpaid dues or tariff gaps -- remains elevated at Rs 3 lakh crore, the ratings agency noted.

"The rationalisation of GST rates on coal from 5 per cent to 18 per cent and removal of compensation cess of Rs. 400 per ton, is expected to reduce the cost of generation for coal-based power generators," it said.

This is expected to further benefit the discoms and translate into a reduction of around 12 paise per unit in their cost of supply as coal-based capacity accounts for over 70 per cent of total generation at an all-India level, the rating agency said.

The Supreme Court has ordered all state electricity regulatory commissions (SERCs) to liquidate legacy regulatory assets (RAs) within four years and limit the creation of new RAs to 3 per cent of the annual revenue requirement.

Complying with the court’s directive necessitates significant tariff increases, and reduction in aggregate technical and commercial (AT&C) losses below 15 per cent. ICRA noted that Tamil Nadu, Uttar Pradesh, and Rajasthan comprise most of the RA build-up.

“The implementation of the Fuel and Power Purchase Adjustment Surcharge (FPPAS) mechanism is inconsistent across states, restricting the pass-through of increasing costs,” said Girishkumar Kadam, Senior Vice President and Group Head - Corporate Ratings, ICRA.

The Appellate Tribunal for Electricity (APTEL) has been assigned to monitor compliance with the court’s order.