Powering The Discom

Context: There is a need of strong political will and support from state governments to ensure movement in Discoms sector.

Issues associated with discoms

• Fragile financial health: Of State-owned distribution utilities (discoms) due to:
  • High level of aggregate technical and commercial (AT&C) losses,
  • Levy of inadequate tariffs when compared to the cost of power supply,
  • Insufficient subsidy support from state governments, and
  • Significant delay in the process of tariff determination in many states: As of now, only 19 out of 28 states have issued tariff orders for 2021-22, indicating sluggish progress.
• High overall debt burden: Despite implementation of UDAY scheme, debt burden is estimated to increase to around Rs 6 lakh crore in the ongoing financial year.
• High overall subsidy dependence: Likely to be roughly Rs 1.30 lakh crore this year at the all-India level.
• Upward pressure on the cost of power supply for distribution utilities, considering the dominant share of coal in the fuel mix for energy generation, the strengthening of imported coal prices and the possibility of domestic coal price revisions by Coal India.

Government initiatives to revamp discoms: The Revamped Distribution Sector Scheme

• Institutionalising reforms-based and results-linked scheme: Announced in budget 2021-22, with the objective of improving the financial health and operational efficiency of discoms.
• Targets:
  • AT&C losses are sought to be brought down to 12-15% by 2025-26, from 21-22% currently.
  • Operational efficiencies of discoms are to be improved through smart metering and upgradation of the distribution infrastructure, including the segregation of agriculture feeders and strengthening the system.
• The scheme has two parts:
  • Part A pertains to the upgradation of the distribution infrastructure and metering related works.
  • Part B is for training and capacity building, besides other enabling and support activities.
• Criteria based financial assistance: Upon fulfilment of pre-qualifying criteria and achievement of basic minimum benchmarks, evaluated on basis of proposed action plans by discoms, they will be given financial assistance.
  • Discoms and their state governments will have to sign a tripartite agreement with the central government in order to avail benefits under the scheme.
• Solarisation of agriculture sector: To supply electricity to these consumers through agriculture feeder route is likely to result in savings.
  • This is because of a combination of high tariff competitiveness offered by solar power, lower technical losses due to proximity to load centres, and the ability to meet demand during the day when sunlight is available.

Conclusion: While focusing on improving the operational efficiency, and ensuring the financial sustainability of discoms is indeed welcome, timely implementation of the reforms is critical to achieving the milestones.