Why the central government should stop funding the power distribution sector

Source: The post is based on the article “Why the central government should stop funding the power distribution sector” published in the Indian Express on 13^th November 2022.

Syllabus: GS – 3 – Energy.

Relevance: About aggregate technical and commercial (AT&C) losses.

News: The Power Finance Corporation has reported that the aggregate technical and commercial (AT&C) losses of discoms have gone up from 20.7% in 2019-20 to 22.3% in 2020-21.

What are aggregate technical and commercial (AT&C) losses?

The AT&C estimate gives an idea of the losses a distribution company (discom) faces in its line of business.  If a discom has received 100 units of power, the AT&C figure will tell how many units are not recovered in terms of revenue. For example, a figure of 25% would mean that for every 100 units of power fed into the discom, 25 units are not recovered.

Generally, commercial losses largely imply theft, faulty meters, meters being manipulated or bypassed, etc. Some technical losses are inevitable in a distribution system, but these can vary a lot across discoms (roughly between 4 to 12%) depending on the technology.

About India’s AT&C losses and schemes to reduce them

The Indian distribution system has always faced high AT&C losses in excess of 30% in the early 2000s. The AT&C figure was 26.6% in 2011-12. It has come down to 22.3% in 2020-21 (Only a little less than half a per cent a year). It ranges from 4.5% (Daman and Diu) to 60% (Nagaland power department).

The major states where the AT&C figures are higher than the national average include Maharashtra, Uttar Pradesh, Rajasthan, Odisha, Bihar, Jharkhand and Madhya Pradesh.

Due to this a) Discoms became financially weak and made it economically unviable, and b) To meet the revenue gap, discoms borrow money from banks leading to a very high-interest burden.

So, the government introduced

Accelerated power distribution scheme (APDP): Under this, the government, has been trying to lower AT&C losses by providing grants/cheap loans to discoms to improve their distribution infrastructure and also for the installation of smart meters.

Many versions of the scheme have been attempted. For instance, in 2022, a budgetary outlay of about Rs 3 trillion was earmarked for aiding the distribution sector.

Why are AT&C losses not coming down?

1) Work culture issue in public discoms, 2) Lack of consumer indexing: All end consumers get their supply from some identified distribution transformer (DT). Each DT is under the supervision of one person who is held accountable for losses (meaning theft) from his DT. In most public discoms, no one knows which consumer is attached to which DT (implying a lack of indexing).

What should be done to reduce AT&C losses?

If the AT&C losses come down to 15% (the target in several government policy documents) from 23%, additional revenue of about Rs 50,000 crore may be generated. For this,

India needs proper indexing: For example, the Delhi discoms have reduced AT&C losses from 50% (in 2002) to somewhere between 7 to 8% today.

Strict stand from the Centre: The central government provided the money, but the states fail to reduce AT&C losses so far. Hence, the centre should stop funding the distribution sector and leave it to the states to clear the issue.

This will force the state governments to enhance retail tariffs along with reducing losses.