Explainer: Payment defaults cripple power sector

Prime Minister Narendra Modi has recently called upon the states to pay the money they owe to the gencos and discoms on time.

Explainer: Payment defaults cripple power sector
States must follow Kerala-Himachal Pradesh model and switch to the direct transfer of electricity subsidy to the consumers.

State-run power utilities make losses in many countries and so do other public utilities like the railways. But the losses in India are very high and fiscally unsustainable.

Prime Minister Narendra Modi has recently called upon the states to pay the money they owe to the gencos and discoms on time. “About Rs 2.5 trillion of power gencos and discoms’ money is trapped,” he said. As the unpaid dues have crippled the discoms, they are unable to invest in upgradation of infrastructure in the distribution chain, which is essential for reducing distribution and transmission losses in many states. Deepa Jainani takes stock.

Who owes how much and to whom?

State-run discoms currently owe about Rs 1.1 trillion to gencos and state governments owe discoms Rs 1.3 trillion — state departments and local bodies have dues of close to Rs 63,000 crore to discoms while unpaid subsidies stand at over RS 76,300 crore.

Also read| PM Modi urges states to clear power utilities’ dues of Rs 2.5 lakh crore

What is the debt stock of discoms at present?

A little over Rs 5 trillion, a quarter of it the debt of Tamil Nadu entities

What is the “ACS-ARR” gap?

The gap between the average cost of supply and the average revenue realised. At the national level, it is 36 paise per unit now, down 47 paise in 2015-16 but higher than 28 paise in 2019-20.

Also read| Powergrid Infrastructure Q1 net profit grows 84% to Rs 213.9 crore

What is the solution to the crisis?

While making use of government scuccour in the form of revival schemes — the latest one is a Rs 3-trillion package– states governments need to make the subsidy payments to discoms in time and also ensure that government departments/local bodies pay their bills duly, just like ordinary citizens. Secondly, tariffs must be revised incrementally to factor in fuel, O&M and salary costs, and to facilitate capital expenditure necessary to strengthen the distribution system. States must follow Kerala-Himachal Pradesh model and switch to the direct transfer of electricity subsidy to the consumers.

Which are the states/UTs discoms with the highest overdues to gencos?

State-run discoms currently owe about Rs 1.1 trillion to gencos and state governments owe discoms Rs 1.3 trillion – state departments and local bodies have dues of close to Rs 63,000 crore to discoms while unpaid subsidies stand at over Rs 76,300 crore.

What are AT&C losses and how do they affect the discoms?

Aggregate transmission and commercial (AT&C) losses indicate the gap between input energy into the system and the units for which payments are collected. High losses are usually due to low investment in strengthening infrastructure, poor maintenance and theft. An increase in the AT&C loss implies an increase in cost, which will need to reflect in tariffs.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

Photos