Revival plan for discoms

December 28, 2015 1:02 am0 commentsViews: 168

On their part, having improved their balance sheets, SEBs will sell the rest of their debt as bonds backed by state guarantee. Once 50 per cent of their outstanding loans are taken of, the states’ interest  burden will be halved outright. The SEBs will have to take steps to reduce their AT&C losses from the current national average of 22 per cent to 15 per cent helped by the Centre’s Integrated Power Development Scheme (IPDS) and the Deen Dayal Upadhyay Gram Jyoti Yojana (DDUGJY). To ensure that the states do not digress from the road map, the losses, if any, of the SEBs will have to be taken over by the states from FY17 without any relief on the FRBM front; 5 per cent of the preceding year’s losses in FY17, 10 per cent in FY18, 25 per cent in FY19 and 50 per cent in FY20.

The distribution segment of the power sector remains a gargantuan task – both politically unpalatable and financially debilitating. It involves fixing an enormously inefficient and bankrupt power distribution system that has accumulated losses in excess of Rs 4 lakh crore. Many discoms have been containing losses not by improvement in their functioning or increases in tariffs, but simply by resorting to outages for long hours. The consumers’ interest has not been in the regulators’ radars.

Its root cause lies in the inability of state governments to muster courage and raise power tariffs as power generation and distribution costs continued to rise. That has laid 21 of India’s 29 power distribution companies ailing; preventing modernisation of equipment and networks, and creating a vicious cycle that they are now struggling to get out of. This explains, why in the last 12 years of reforms, governments considered it too much of a hot potato and left it to be dealt with by the next one.

The Ministry of Power (through the Centre’s directive) wants the states to transfer most of these losses over a period of five years. However, given  that the states’ own finances continue to be fragile, the new proposal might face resistance from some states. It has already dropped its proposal of making tariff policy mandatory in the amendment to the 2006 policy after it faced an objection from the states and electricity regulators. Considering that the MoP had to soften its stand with regard to the mandatory adherence to tariff policy keeping in view India’s federal structure, the states may have their individual views on UDAY as well, which the MoP will have to factor in while issuing further directives on the scheme.

24×7 supplies are assured only because of political considerations, not because of efficiencies. This is a reality in most jurisdictions of the lossmaking distribution companies. If they continue to do this, losses are bound to increase.

As India embarks on a journey towards new and environment friendly sources of energy (RE target of 175 GW by 2022), compliance on Renewable Purchase Obligations (RPO) by discoms will be major challenge after consistently failing in procuring power through renewable energy sources. The Power ministry’s new ambitious plan to revive ailing discoms is a step in the right direction with even private distribution companies expressing willingness to come on board. Provided, of course that all states sign up for it and it is implemented in both letter and spirit. The key to the success of the scheme is acceptance and implementation by state governments.


gaurav_sharma The author is Researcher, 

Independent Power Producer Association of India (IPPAI)

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