There are fresh signs that power distribution has turned a corner

Source: The post is based on the article “There are fresh signs that power distribution has turned a corner” published in Mint on 18^th April 2023.

Syllabus: GS 3 – Infrastructure

Relevance: About the condition of Discoms

News: The article explains the problems faced by the Discoms and measures that have improved their conditions.

What are the problems faced by India’s power distribution sector?

India’s power distribution sector has faced multiple structural problems.

Most distribution utilities (discoms) have suffered from increasing aggregate technical and commercial (AT&C) losses, widening financial losses and growing debt burdens.

Tariff revision in several states has lagged behind the increase in electricity prices, ultimately leading to growing disparities between supply costs and income. 

This has made discoms unable to make timely payments to generation and transmission companies, and lagging investments in long-term infrastructure.

However, the 11th Integrated Ratings and Ranking report on discoms released by the Union Power Ministry suggests that conditions of discoms are improving.

What are the findings of the 11th Integrated Ratings report?

Despite an 8% increase in total gross input energy, the gap between expenditure and income on a cash-adjusted basis (ACS-ARR Gap) reduced substantially to ₹53,000 crore in 2021-22 compared to ₹97,000 crore in 2019-20.

Rajasthan, Maharashtra, Karnataka, Madhya Pradesh and West Bengal were the major contributing states.

The sector wide cash-adjusted ACS-ARR gap per unit has improved to 40 paise, down from 79 paise in 2019-20 and 89 paise in 2020-21.

AT&C losses reduced to 16.5% in 2021-22, lower than 19.5% in 2019-20 and 21.5% in 2020-21. Bill collection efficiency increased by over 3% to reach 96% in 2021-22.

While the sector’s debt level is high, the rate of increasing debt is reducing. The average debt service coverage ratio for the sector also turned positive.

What has led to this improvement?

This is because of the Revamped Distribution Sector Scheme (RDSS).

Further, several state governments have also taken proactive actions. They have provided close to ₹56,000 crore of equity, via capital grants for loan takeovers, in the past three years.

State governments paid out 100% of the tariff subsidy amount for 2021-22, as well as clearing certain backlogs.

Karnataka, Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh and Punjab are the states that have shown most improvement in subsidy disbursal.

Discoms have also taken significant steps by replacing physical bill generation and payment with digital billing and online payments to ease collections.

The majority have shifted to Ind-AS accounting standards.

What more can be done to improve the condition of discoms?

Adopting certain rules and practices: Reforms like the Late Payment Surcharge Rules 2022 and the requirement for energy accounting and auditing may be crucial in resolving AT&C losses and paying off transmission company debt.

Efforts by Discoms: Discoms must adopt improved accounting practices like adopt Ind-AS, prepare quarterly accounts, and conduct energy audits. They also need enhanced data analytics capabilities to leverage smart infrastructure and identify opportunities to reduce AT&C losses.

It is also important to expedite capital projects for a wider smart-meter rollout, and to strengthen the system utilizing RDSS funds.

Efforts by State Govt.: State governments must disburse full tariff subsidy amounts and clear past arrears in a timely manner. Regulators must also ensure timely issuance of cost- reflective tariff orders.