The Union power ministry, under the stewardship of RK Singh, has done a great job of chastening discoms. Although several attempts have been made over the past decade to bring the discoms to book, it is only now that their overdues to gencos are coming down meaningfully. In less than a year of the Late Payment Surcharge (LPS) rules being rolled out, these dues have collapsed to just Rs 26,517 crore in May, a steep drop of 74%. What schemes like UDAY, which was launched in late 2015, could not achieve, the carrot-and-stick approach of the LPS has managed to do. The LPS is framed such that the discoms are eligible for a 2% discount on the tariff if they pay their current dues on time. But if they default, they won’t be spared the penal surcharge.
The move to facilitate funding for discoms from REC and PFC to enable them to clear their legacy dues in instalments was a clever one. Discoms were compelled to use this route as, otherwise, any payments they made would be adjusted against legacy arrears. This meant they would end up defaulting on current dues and ultimately lose access to power. The beauty of the LPS, as RK Singh had told this paper soon after it was launched, is that the process is a fully automatic one and cannot be interfered with by anyone; essentially, even political pressure can’t save an errant discom from disconnection. It would also restrain states from giving free power unless they have the financial wherewithal do to so.
It is not just in the area of arrears that the ministry has done well. The ambitious target to bring down the AT&C (aggregate technical and commercial losses) to pan-India levels of 12-15% and also to narrow the gap between the average cost of supply (ACS) and average revenue realised (ARR) to zero by 2024-25 is showing results. Thanks to more efficient collections, the AT&C losses in FY22 were down to 16.5% from 21.5% in FY21. The ACS-ARR gap halved to 40 paise per unit in FY22 from 79 paise in FY21. Once again, it is a carrot-and-stick approach under the revamped RDSS (revamped distribution sector scheme) that’s doing the trick. The scheme provides financial support for pre-paid smart metering systems and upgrading the distribution infrastructure but this is subject to the states meeting pre-qualifying criteria and minimum reform benchmarks.
In general, discipline has been enforced by forcing utilities to perform if they want access to funds; auditing and accounting of energy is now mandatory. Some quick thinking by the ministry should also lower the peak demand deficit this summer from 4% last year. The peak demand this year is estimated at 229 GW, which is about 13 GW more than last year. In January, the ministry asked power plants to increase imported coal blending to 6% from 4% last year; that would free up coal to feed additional capacity of about 5-6 GW. Next, it invoked the emergency clause under Section 11 of the Electricity Act and directed imported coal-based power plants, more than half of which were either non-operational or operating at lower PLFs, to ramp up generation. Moreover, with renewable capacity being commissioned, about 3-4 GWs of thermal capacity is expected to be freed up. With much more transmission capacity now commissioned—64% more than in 2014—power will now available to many more.
