Policy Wise: India’s Power Sector

Issues faced by Discoms in India

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Issues of Discoms

The article highlights the need for frequent financial aids to the discoms by the Centre and discusses the factors responsible for this.

Frequent rescue packages for discoms

  • Recently, there was a sharp decline in the dues owed by power distribution companies, discoms, to power generating companies.
  • Discoms have paid off their dues in part by drawing down a liquidity facility arranged by the Centre last year.
  • This rescue package was arranged to prevent the entire power sector chain from suffering because of the discoms’ inability to meet their obligations. 
  • In the initial years after the introduction of UDAY some states did, in fact, witness an improvement in their financial and operational indicators.
  • But it wasn’t sustained, There has been a sharp deterioration in several parameters.

Low performance of Discoms

1) On the basis of AT&C losses

  • A key metric to measure the performance of discoms is AT&C losses.
  • The UDAY scheme had envisaged bringing down these losses to 15 per cent by 2019.
  • However, as per data on the UDAY dashboard, the AT&C losses currently stand at 21.7 per cent 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.

2) On the basis of cost and revenue per unit

  • On another metric — the gap between discoms’ costs and revenues — the difference, supposed to have been eliminated by now, stands at Rs 0.49 per unit in the absence of regular and commensurate tariff hikes.
  • For the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

What are the factors responsible for inefficiencies?

1) Electrification push without cost restructuring

  • The government’s push for ensuring electrification of all have contributed to greater inefficiency.
  •  To support higher levels of electrification, cost structures need to be reworked, and the distribution network would need to be augmented — in the absence of all this, losses are bound to rise.

2) Economic fallout of the pandemic

  • With demand from industrial and commercial users falling, revenue from this stream, which is used to cross-subsidise other consumers, has declined, exacerbating the stress on discom finances.
  • A turnaround in the economy will provide some relief, but will not form the basis of a sustained improvement in finances.

3) Lack of consumer data and metering

  •  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 is difficult to ascertain the level in the chain where losses are occurring.
  • Other than discoms in metros like Delhi and Mumbai, there is also limited data on which consumer is attached to which DT.
  • This lack of data makes it difficult to isolate and identify loss-making areas and take corrective action.

4) No tariff hike

  • The continuing absence of political consensus at the state level to raise tariffs or to bring down AT&C losses signal a lack of resolve to tackle the issues plaguing the sector.

Way forward

  • One of the solution centres around a national power distribution company.
  • Another option is to deduct discom dues, owed to both public and private power generating companies, from state balances with the RBI forcing states to take the necessary steps to fix discom finances.
  • The Centre has linked additional state borrowings to the completion of distribution reforms to incentivise states to act.

Consider the question “Despite several efforts by the Centre to improve the efficiency, discoms continue to perform dismally requiring frequent financial aids. What are the factors responsible for this? Suggest the way forward.” 

Conclusion

Short of radical measures — privatisation remains a chimera — it is difficult to see how a sustainable turnaround in the financial and operational position of discoms can be engineered. As the amounts involved rise, minor tinkering isn’t likely to produce the desired results.


Back2Basics: AT&C losses

  • Distribution loss consists of two parts:
  • a. Technical loss
  • b. Commercial loss.
  • It is also called AT&C loss.
  • AT&C loss is nothing but the sum total of technical and commercial losses and shortage due to non-realization of billed amount.
  • AT&C Loss = (Energy input – Energy billed) * 100 / Energy input.
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