Nursing the ailing power discoms back to health

Synopsis: Despite the UDAY scheme, the condition of DISCOMS is critical. This demands a closer analysis.

Introduction

The DISCOMS provide power to households by connecting power producers to households. Though this seems a good economic proposition, the condition of DISCOMS in India is fragile.

What are the causes for the fragile economic health of Discoms?

Their precarious financial position is due to the high level of aggregate technical and commercial (AT&C) losses, the levy of inadequate or lesser tariffs when compared to the cost of power supply, and insufficient subsidy support from state governments.

Their annual losses are estimated to be around 45,000 to 50,000 crore and the overall debt is around 6 lakh crore.

What steps have been taken by the Government?

In budget 2021-22, the Union government had announced the launch of a “reforms-based and results-linked” scheme for improving the financial health and operational efficiency of discoms.

Revamped Distribution Sector Scheme was notified with an overall outlay of Rs 3.03 lakh crore. Under the scheme, AT&C losses will be brought down to 12-15% by 2025-26, from 21-22%. Operational efficiencies of discoms will be improved through smart metering and upgradation of the distribution infrastructure, including the segregation of agriculture feeders and strengthening the system.

The scheme has two parts. Part A will focus on upgradation of distribution infrastructure and smart metering. Part B is focused on training and capacity building.

How will the scheme work?

Under this scheme, DISCOMS will have to sign a tripartite agreement with the Central and State government to avail the benefits. The action plan to be submitted to Government will have two parts.

i) The first part will contain the root cause analysis and steps needed to reduce the AT&C losses. An inter-ministerial committee will finalize the “Results Evaluation Framework” which will incorporate the parameters proposed by the DISCOMS. A loss-making DISCOM will not be eligible for the benefits until its plans are approved by the central Government.

ii) The second part of the plan will list out the steps to reduce losses and improve operational efficiency.

What are the factors still impacting the finances of the DISCOMS?

One major factor impacting the health of DISCOMS is the determination of the tariffs. Currently, 19 out of 28 states issued orders declaring delays in the tariff determination process.

Moreover, India’s power supply is overly dependent on coal, and given the issues of coal supply and pricing, maintaining predictability is a big challenge.

What can be the way forward?

While the government has taken many reforms in the past, the key to success lay in their timely implementation.

Source: This post is based on the article “Nursing the ailing power discoms back to health” published in the Indian Express on 13th October 2021.