Rising discom debt

Context: The persistent problems of Discoms have been exaggerated by the pandemic related economic downturn. The sector needs urgent policy reforms 

Problems in Discoms:

• Weak pre-pandemic position:

• Victim of the inability of the political leadership to make the right policy choices. 
• Rising Debt: discoms would accumulate debt worth Rs 4.5 trillion by the end of the current fiscal year, an increase of 30% over last year (study by CRISIL). 
• One of five Discoms is in a position to service debt through cash generation and budgeted subsidies. 

• Failure of government support: 

• Recently announced a Rs 90,000-crore liquidity support programme for discoms may not be sufficient.
• Ujwal DISCOM Assurance Yojana did not work as Discoms do not generate enough cash.

• Bleak future: the overall demand is expected to remain muted in the current financial year and will further complicate the cross subsidy matrix of subsidies.

Proposed Structural Reforms: Amending Electricity Act 2003

• Determining tariffs reflecting costs: to be done by proposed regulatory commissions.

• Increased transparency: through the payment of direct subsidies.

• Enforcing contracts: though proposed Central Enforcement Authority between generators, transmitters, and distributors 

• Empowered load dispatch centers: to supervise the payment security mechanism before scheduling the dispatch. 

Way forward:

• Need to understand the nature of cross-subsidies: as they are unsustainable and distort the tariff rates. Apart from liquidity support, structural reforms should be quickly pursued.