EXPLAINER: Why tariff revisions are key to discoms’ revival

At the core of the issue is high user subsidies and delayed payments to the discoms by the states, creating a chain of payment defaults.

discoms
Discoms suffer massive losses due to power theft (high aggregate technical & commercial or AT&C losses), meter tampering, inaccurate billing and above all, inadequate tariff hikes.

Several schemes have been run — and are currently being implemented — to make discoms financially viable and operationally competent. But, these haven’t yielded the desired outcomes. At the core of the issue is high user subsidies and delayed payments to the discoms by the states, creating a chain of payment defaults. Deepa Jainani examines the long-standing issue in the wake of a Tamil Nadu utility’s proposal for 10-35% hike in tariffs, after a decade.

What plagues the discoms?

Discoms suffer massive losses due to power theft (high aggregate technical & commercial or AT&C losses), meter tampering, inaccurate billing and above all, inadequate tariff hikes. They bear part onus of the subsidies as these are not released on time.

What has been done to restore the financial health of the discoms?

The Centre has, over the last two decades, implemented a series of revival packages, including the Financial Restructuring Plan in 2013, Ujwal Discom Assurance Yojana I in 2017 and II in 2020.

What are the current schemes?

A liquidity infusion scheme, extra borrowings of 0.5% GSDP linked to power-sector reforms, stricter rules for lending by PFC-REC, the revamped distribution sector scheme (RDSS) and letter of credit for payment security under power purchase pacts. RDSS has a budgetary outlay of `3.03 trillion for five years. It aims to bring down AT&C losses to 12-15% and align supply costs and revenue realised, by FY25.

How is the RDSS different from earlier packages?

Like earlier schemes, the RDSS too offers financial incentives linked to the achievement of milestones and are linked to reforms. What distinguishes RDSS is its focus on compulsory smart metering infrastructure to improve collection inefficiency. The scheme mandates the installation of 250 million smart prepaid meters over the next four years.

Why are timely and adequate tariff revisions important?

Discoms require to revise tariffs incrementally and frequently to factor in fuel, O&M and salary costs, and to facilitate capital expenditure necessary to strengthen the distribution system. Absence of rational tariff revisions results in discoms incurring losses and being caught in a debt trap. However, several state electricity regulators haven’t exactly been functioning as independent watchdogs. They go by the state government’s policies, many of which offer power to large sections of non-industrial consumers at highly concessional rates.

How does inadequate tariff revision reflect on operations?

As per the government’s UDAY portal, for every unit of electricity sold, the discoms are currently losing 36 paise. The UDAY target was to eliminate this gap by FY19-end.

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