How Not To Help Discoms

Context: Government shall consider moving away from traditional reform-linked assistance schemes to transitional financial support to all discoms in order to check the continuing crisis in discoms.

Government initiatives to improve the position of Discoms

• UDAY scheme in 2015: Envisaged states to take over 75% of the DISCOM debt as of Sept 30, 2015.
• Recent reform-linked assistance schemes: Total outlay for the scheme is Rs 3.03 lakh crore, spread over five years. The objective of the scheme is -
  • To bring down commercial losses in the range of 12-15% ;
  • To reduce the difference between the average cost of supply (ACS) and average revenue realised (ARR) to zero by 2024-25.

Critical issues worsening the position of Discoms

• High level of losses: Average losses (inclusive of technical and commercial) is about 22 per cent today; several discoms have losses in excess of 40 per cent.
  • The Power Finance Corporation reports that the aggregate loss of the discoms (after tax) was about Rs 49,600 crore in 2018-19.
  • A recent report of NITI Aayog has assessed the losses to be about Rs 90,000 crore in 2020-21.
• Investment gap: Significant investments would be required to bring down losses to a single-digit level.
• Complex monitoring: Parameters of performance assessment keep fluctuating, making it very difficult to fathom their trend on a quarter-wise basis, rendering the release of funds to be tricky.
  • Monitoring issues are bound to rise as the new scheme envisages 26 parameters, and for some parameters, it may be difficult to assign a score which leads to some amount of subjectivity.
  • For E.g. Providing accurate energy accounts, tariff reforms initiated, consumer rights, and grievance redressal handled.

Way forward: Providing only transitional financial support to all discoms. This approach has many advantages over current model (reform-linked assistance).

• A successful model: In case of Delhi, a transitional support of Rs 3,450 crore spread over five years proved to be beneficial since it allowed privatised utilities some space to bring down their losses.
• Normalcy in monitoring practices: The quantum of support can be worked out on some normative basis, and the performance of the discom can be monitored over a five-year period.
• Performance-based incentives: Targets of loss reduction can be laid down on a year-wise basis, and if these targets are not met, the privatised utilities would have to bear the loss.