Discom’s loss reduction: Cost curbs, tariff hikes held the key

By: | Published: June 18, 2018 4:09 AM

A reining in of the costs of electricity generation at state-owned power plants, tariff hikes and digital billing-and-collection have enabled state-owned electricity distribution companies (discoms) under the Ujwal Discom Assurance Yojana (UDAY) to halve their losses to Rs 17,352 crore in FY18.

Discom, Ujwal Discom Assurance Yojana, uday,  power plant, tariff hike, A reining in of the costs of electricity generation at state-owned power plants, tariff hikes and digital billing-and-collection have enabled state-owned electricity distribution companies (discoms) under the Ujwal Discom Assurance Yojana (UDAY) to halve their losses to Rs 17,352 crore in FY18.

A reining in of the costs of electricity generation at state-owned power plants, tariff hikes and digital billing-and-collection have enabled state-owned electricity distribution companies (discoms) under the Ujwal Discom Assurance Yojana (UDAY) to halve their losses to Rs 17,352 crore in FY18. According to official data reviewed by FE, average power purchase costs (from non-renewable sources) increased at much lower rates after UDAY implementation. The cost rose just 1.2% in FY17 and 1.4% in FY18, compared with a sharp 7.5% in FY16. Andhra Pradesh and Bihar even managed to marginally reduce their power purchase costs in FY18 over the previous year.

For many years until FY16, the discoms’ power purchase cost had steadily gone up. On the tariff side, Chattisgarh, Madhya Pradesh, Bihar and Jharkhand have raised power tariffs by 31.4%. 27.7%, 22.9% and 20.2%, respectively, between FY16-18. Rajasthan discoms hiked tariffs by 9.5% in September 2016 and Karnataka increased them by 8% in FY18, steps that helped reduce the gap between the discoms’ cost of power supply and revenue realised. Shutting down of old state-run plants was another strategy that helped discoms’ loss reduction. While Gujarat retired more than 600 MW of state-owned power plants in FY18, Maharashtra shut down 410 MW capacity and Uttar Pradesh retired 360 MW. UDAY was adopted by a few states in October 2015 and through FY16, most states had embraced the scheme.

What enabled the discoms to control the rise in power purchase cost is the coal linkage rationalisation policy unveiled by the Centre. Under the policy, thermal power plants are allowed to transfer existing coal linkages to generation units nearer to mines, shutting down old inefficient power plants. Many plants run by the state governments have made use of this policy, which also encourages discoms to buy power from the cheapest source available. Coal minister Piyush Goyal recently said that annual savings to discoms through coal linkage rationalisation, which shortened transportation distances for 55.7 million tonne of the fuel, was around Rs 3,360 crore. The option to rationalise coal linkages was earlier available to central and state-owned power plants, but in May the government provided the facility to independent thermal power plants as well. Rajasthan also gained from the public-private partnership model for electricity distribution in key cities like Kota, Bharatpur and Bikaner.

Aggregate technical and commercial (AT&C) losses of Rajasthan discoms in FY18 were brought down to 19.7% from 23.8% in FY17. Rajasthan discoms could curb their power purchase costs as state-run gneration units reduced the heat rate (efficiency parameter) by about 400 kilo-calorie per unit or 15%. Technical improvements such as distribution transformer metering and GPS tracking also helped the discoms cut down losses. “Operational efficiencies have translated into significant financial gains for many discoms,” a senior government official told FE. For example, Madhya Pradesh implemented an energy audit software for the accurate measurement of line losses at distributed transformer level. After the software was put in use, AT&C losses reduced from 37.3% to 22.2% in 14 high-loss distribution areas in the state.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition