Band-Aid For Power

Context: Improving the financial position of discoms needs radical changes that demand political will. Else, sector will remain dependent on rescue packages.

Issues underlying the DICOMS: While in the initial years of UDAY, the state’s DICOMS did see noticeable improvements (decline in the dues), there has been a sharp deterioration in several parameters.

• AT&C (Aggregate Transmission and Commercial) losses: These losses stem from poor or inadequate infrastructure or on account of theft or bills not being generated or honoured.
  • As per data on the UDAY dashboard, the AT&C losses currently stand at 21.7% at the all-India level (UDAY aimed to reduce it to 15% by 2019).
  • In the case of the low-income north and central-eastern states — Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh — the losses are considerably higher.
• Absence of regular tariff hikes: This has led to an increased gap between discoms’ costs (average cost of supply) and revenues (average revenue realised).
  • The difference, supposed to have been eliminated by now, stands at Rs 0.49 per unit in the absence of regular and commensurate tariff hikes.
  • For the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

Factors leading to such losses:

• Focus on quantity over quality (Power for All):
  • Push for ensuring electrification have contributed to greater inefficiency.
  • As household connections are ramped up, to support higher levels of electrification, cost structures need to be reworked, and the distribution network (transformers, wires, etc.) would need to be augmented—in the absence of all this, losses are bound to rise.
• Economic fallout of the pandemic:
  • With demand from industrial and commercial users falling, revenue from this stream, which is used to cross-subsidise other consumers, has declined, exacerbating the stress on discom finances.
  • While the Union budget proposed to facilitate financing and upgradation, stretched finances, claims by a ravaged health sector and households demands have reduced fiscal space.
• Unmetered supply: Even six years after UDAY was launched, various levels in the distribution chain — the feeder, the distribution transformer (DT) and the consumer — have not been fully metered.
• Lack of political will: The continuing absence of political consensus at the state level to raise tariffs (Opposition parties in Karnataka recently protested against a tariff hike of 30 paise) or to bring down AT&C losses signal a lack of resolve to tackle the issues plaguing the sector.

Analysing the faults in provided solutions:

• Building a national power distribution company: Given that much of the problem stems from inefficient public sector entities, another government entity cannot be a possible solution.
• Deducting the dues from the state balance: With Jharkhand having recently exited from such an agreement after its enforcement (a tripartite agreement between the state, Centre and RBI allowed for the debit of dues owed by the state discom), questions have been raised on the feasibility of this option.
• Liking state borrowings with the distribution reforms: This will bring back the culture of de-licensing.
• Privatisation: Remains a chimaera, as it is difficult to see a sustainable turnaround in the distribution segment.