Schemes like DDUGY and IPDS critical to fixing power
Given the electricity sector loses around one rupee per unit of power generated, and the number is increasing each year with tariffs rising slower than costs, it is obvious fixing the sector isn’t going to be easy. Indeed, what complicates things is the high degree of cross-subsidies—upwards of 80% in states such as Uttar Pradesh and Tamil Nadu—which means tariffs will have to be raised several times over in states, something that is politically infeasible. Which is also why, in most cases, the previous government’s financial restructuring package has not achieved much. Indeed, with state government-run electricity boards badly cash-strapped and unable to pay for the electricity they need to buy, load shedding levels have gone up across the country. It is in this context that the plans cleared by the Cabinet last week have to be looked at.
Last week, the Cabinet cleared the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGY) costing R43,000 crore which is essentially a scheme to separate agriculture and non-agriculture feeders in rural areas—in states such as Gujarat, the separation of feeders is credited for being the main turnaround agent in the state’s electricity sector, with rural households also paying for power once they were assured of regular supplies. In addition, there is the R32,612 crore Integrated Power Development Scheme (IPDS) to strengthen the sub-transmission and distribution system in urban areas which also helps metering of distribution transformers and feeders—once the distribution transformers are metered, reducing transmission and distribution losses will be far easier.
Cutting transmission losses is critical if power tariffs are to be kept in check, and the sector’s health restored. At an all-India level, losses are an unacceptably high 26%; at the level of states such as UP, these go up to even over 40%. In terms of simple maths, this means that if it costs a power company one rupee to produce a unit of power, the tariff has to be R1.66 since there is a 40% transmission and distribution loss. Given tariffs for industrial/commercial consumers are already way too high, hiking tariffs by this amount can only happen by dramatically hiking rates for agriculture/residential consumers. The more politically feasible way is to, while hiking tariffs for the last two categories of customers, reduce losses so as to keep these hikes to the minimum. This is what last week’s power clearances hope to achieve.