Power Struggle: Tighter regulations, policies to dent discoms’ finances

By: | Updated: July 9, 2018 2:54 AM

The power ministry has made it clear that aggregate technical and commercial (AT&C) losses above 15% won’t be compensated in tariffs (the new regime is likely from FY20).

UDAY scheme has helped the state-owned electricity distribution companies (discoms) to halve their losses to Rs 17,352 crore in FY18.

The UDAY scheme has helped the state-owned electricity distribution companies (discoms) to halve their losses to Rs 17,352 crore in FY18 but an imminent regulatory crackdown may cause many of them to relapse. FE has estimated that the cumulative impact of stepped up regulations and policy-induced obligations on the discoms would be around Rs 18,000 crore per year.

The power ministry has made it clear that aggregate technical and commercial (AT&C) losses above 15% won’t be compensated in tariffs (the new regime is likely from FY20). This would hit most discoms as AT&C losses of 26 major states under UDAY were 19% at the end of FY18 — these losses are very high in Bihar (33.2%), MP (29.7%), UP (27.7%); a sudden 4 percentage points reduction will be a tall order for most of the discoms.

Currently, regulators compensate the discoms for bulk of their actual AT&C losses.

Since the monetary value of 1 percentage point change in AT&C losses is about Rs 4,000 crore, UDAY discoms across the country would have to take a hit of 16,000 crore, if tariffs don’t allow such losses above 15%.

Besides, the government’s scheme of 100% household electrification under the Saubhagya scheme would also put further pressure on discoms. Connecting 3.6 crore households more to the electricity grid would roughly require additional 80,000 million units (MU) of electricity per annum, based on an average load of 1 KW per household for eight hours in a day. Given the gap between cost of supply and revenue earned of Rs 0.22/unit, Saubhagya could lead to under-recovery of nearly Rs 1,800 crore every year.

Moreover, the ministry is planning to make it mandatory for discoms to tie up long-term or medium-term PPAs to meet the annual average power requirement in their areas of supply. If implemented, the move would inflate the fixed charges to be paid by discoms to gerenators; an estimate is that PPA for every 1,000 MW would entail fixed charges to the tune of Rs 600 crore/annum. Power demand is always dynamic depending on seasonal consumption factors, but discoms would have to continue paying fixed costs – which usually amounts to about 10% of the installation cost or Rs 6 crore/MW– even when they do not evacuate power from the power plants when electricity demand is low.

Union power minister RK Singh has pushed for the proposed the reforms at the conference of power ministers of all states held in Shimla on July 3. “If these reforms are not introduced, discoms, which are the fulcrum of the power chain, would continue to remain in losses,” Singh said.

Similarly, the power ministry’s plan to cap cross-subsidy — additional tariffs paid by industrial and commercial consumers to subsidise households and farmers — at 20%, is also expected to dampen the receipts of cash-strapped discoms. The plan to impose penalty on disccoms for gratuitous load shedding is also threatening to impact their finances.

A reining in of the costs of electricity generation at state-owned power plants, tariff hikes and digital billing-and-collection have enabled discoms under UDAY to reduce their overall AT&C losses and halve their financial losses in FY18. Discoms in four major states —Maharashtra, Rajasthan, Haryana and Andhra Pradesh — have swung to profit in FY18, tiding over a phase of heavy loss-making that had lasted for several years. As reported by FE earlier, the discoms’ finances would have looked grimmer last year had they paid the dues to generators on time. In fact, the dues to power producers surged 150% to over Rs 32,000 crore in FY18.

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