Financially-weak discoms trigger a domino effect in the sector, as they are unable to pay power producers on time, who in turn fail to service their debt.
The key challenges before the new government in the power sector include ensuring uninterrupted supply across the country and improving the financial health of the state-owned electricity distribution companies (discoms). The Ujwal Discom Assurance Yojana (UDAY) for revival of discoms has not met the targets — cumulative financial losses of discoms grew 44% to Rs 21,658 crore at the end of FY19, reversing the declining trend since the scheme was launched in November 2015.
Financially-weak discoms trigger a domino effect in the sector, as they are unable to pay power producers on time, who in turn fail to service their debt. While assuming charge of the power ministry last week, RK Singh, who held the portfolio in the previous government as well, said the next target would be to ensure 24×7 power for all. However, Singh acknowledged that “such a programme warrants commercial viability,” and thus, “sustainability of the sector would be the next focus area of the government”.
The government had failed to achieve the initial target of ensuring “24×7 affordable and quality power for all by March 2019”, with many major states providing only 17-18 hours of electricity a day to rural consumers. All 36 states/UTs had signed the ‘Power for All’ agreement with the Centre between 2014 and 2017.
Once again, the blame was on weak finances of the discoms, which could not build adequate infrastructure to supply round-the-clock electricity. The addition of 2.5 crore new household connections through the Saubhagya scheme also seemed to have exacerbated the situation.
Dues of discoms to power producers stood at Rs 38,023 crore at the end of FY19, up 60% year-on-year. Defenders of discoms argue that they have been the victim of inadequate tariff hikes by electricity regulators. Research agency Icra noted that the median tariff hike for the discoms at all-India level had reduced from 8% for FY15 to 4% for FY16 and FY17 and further to 3% and 1% for FY18 and FY19, respectively.
Discoms are also waiting for regulators to liquidate “regulatory assets” worth around Rs 77,000 crore, as estimated by India Ratings. Regulatory assets are recoverable discom expenses which state power regulators acknowledge as pass through costs, but are not immediately taken into consideration while calculating electricity tariffs.
Additionally, untimely payments from bulk consumers such as local bodies and state government departments have put additional pressure on them. Power ministry sources said “these receivables of discoms are almost one-and-a-half times their outstanding payables to generating companies”.
During the tail-end of the previous tenure, the power ministry was formulating a new version of the UDAY scheme with a focused attack on AT&C losses — the indicator of loss through pilferage. The government had identified pilferage and shortcomings in billing and collection as the core problems plaguing the health of the discoms.