Problems with discoms need radical reforms

Synopsis: To completely recover from problems with Discoms , India needs radical reforms in the Power sector. Financial aid packages from Centre to Discoms forms only a part of a solution.

Background

• For long, the scenario has been that the Centre has to step in to aid Discoms and tackle the problems plaguing the distribution side of the power sector.
• However, the results of such interventions have not yielded any significant improvements in the health of Discoms.
• The analysis of the performance of Ujwal DISCOM Assurance Yojana (UDAY) reveals the same.

Analysis of the performance of UDAY and Problems with Discoms

• UDAY scheme was introduced by the centre to bring financial Turnaround, Operational improvement of Discoms. Further, it aims to reduce the cost of generation of power, to facilitate the development of Renewable Energy and Energy efficiency & conservation.
• Though some states witnessed an improvement in their financial and operational indicators, it wasn’t sustained. There has been a sharp deterioration in several parameters after the UDAY scheme.
• First, The UDAY scheme had envisaged bringing down these losses to 15% by 2019.
  • However, as per data on the UDAY dashboard, the (Aggregate Technical & Commercial) AT&C losses currently stand at 21.7% at the all-India level.
  • In the case of the low-income north and central-eastern states Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh the losses are considerably higher.
• Second, The UDAY scheme had envisaged eliminating the gap between power costs and revenue by now.
  • However, the gap between power costs and revenue stands at Rs 0.49 per unit due to the absence of regular and commensurate tariff hikes.
  • In the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

What are the reasons for the problems with discoms?

• Lack of metering: Minimizing the AT&C losses is critical to improve the operational efficiency of Discoms.
  • However, even six years after UDAY was launched, various levels in the distribution chain (the feeder, the distribution transformer (DT) and the consumer) have not been fully metered.
  • As a result, it difficult to isolate and identify loss-making areas and take corrective action.
• Decrease in revenue generation owing to the Pandemic
  • Revenue from industrial and commercial users is used to cross-subsidize other consumers.
  • However, owing to the Pandemic the demands from industrial and commercial users is falling. This leads to stress on discom finances.
• Absence of political consensus at the state level to raise tariffs: Many states report losses as they could not eliminate the gap between power costs and revenue.
  • For instance, recently, Opposition parties in Karnataka recently protested against a tariff hike of 30 paise
• The Centre’s “Electricity for all” programme have contributed to greater inefficiency.
  • Because, to support higher levels of electrification, cost structures need to be reworked. Similarly, the distribution network (transformers, wires, etc) need to be augmented. In the absence of such measures, losses are bound to rise.

Suggestions to address the problems with discoms

• One, the creation of a national power distribution company to ensure procurement of electricity at competitive prices.
• Two, deduct discom dues, owed to both public and private power generating companies, from state balances. After that, the RBI can force states to take the necessary steps to fix discom finances.
• Three, linking additional state borrowings to the completion of distribution reforms.

Source: The Indian Express