Helped by the UDAY scheme, electricity distribution companies (discoms) in four 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. Among them, the four states’ discoms made a combined profit of Rs 1,565.5 crore in FY18 compared with an aggregate loss of Rs 10,203 crore in FY17.
If the trend is sustained and discoms in other states (31 states had signed up for the revival scheme since November 2015) also return to the black soon, it could herald a new era for these state-owned entities, traditionally the “weakest link” in the power chain. Also, this could be good news for private power generators, burdened with stressed assets worth nearly Rs 2 lakh crore. Payment discipline by discoms — the combined outstanding dues of these entities to generators is currently pegged at Rs 14,000 crore — could help salvage the sector as a whole.
When the UDAY scheme for reviving the discoms was launched in 2015, the combined annual (FY16) losses of these entities were a staggering Rs 52,000 crore. Gujarat was the only state to sign up for the scheme with its discoms already profitable. West Bengal, which too had profitable state-owned discoms then, did not join the scheme.
Emails sent to the electricity departments of the four states seeking the details of the turnaround of the discoms remained unanswered. However, analysts attributed the feat to checks on power purchase costs, improved billing and collection efficiencies, and reduced interest costs owing to debt takeover by states under the UDAY scheme. All the newly profit-making states, except Rajasthan, met or surpassed their respective targets for reducing aggregate technical and commercial (AT&C) losses set under the UDAY scheme.
However, the newly profitable discoms reported a rise in their outstanding dues to power producers: Andhra Pradesh, Haryana and Rajasthan discoms had dues of Rs 2,940 crore, Rs 1,108 crore and Rs 1,664 crore, respectively, to power producers outside the states’ ambit at FY18-end.
Rajasthan’s interest costs came down by 14% in FY18, saving about Rs 5,000 crore, a note released by the power ministry said in May. While improving its billing and collection efficiency, the state’s discoms were also helped by the implementation of public-private partnership model for electricity distribution in key cities like Kota, Bharatpur and Bikaner.
Gujarat and Maharashtra saved on power generation costs by shutting down old inefficient state-run units. While Gujarat retired more than 600 MW of state-owned power plants in FY18, Maharashtra shut down 410 MW capacity. Andhra Pradesh managed to reduce its power purchase costs for two consecutive financial years — FY17 and FY18. Andhra discoms are currently on top of the power ministry’s rating chart for discoms in meeting UDAY targets.
There are, however, some potential downsides to the discoms’ revival story. As reported by FE earlier, providing electricity connections to 3.63 crore households by December this year is expected to raise the discoms supply cost by an annual Rs 32,200 crore or a quarter.