Launching the 3-trillion-rupee Revamped Distributor Sector Scheme last week, Prime Minister Narendra Modi urged states to clear their unpaid dues, estimated to be a staggering 2.5 trillion rupees, to distribution and generating companies.
He said clearing these bills was not a case of politics but nation-building. According to Power Ministry data, states and union territories together owed more than 1.1 trillion rupees to generating companies while the total money owed to the discoms stood at 1.4 trillion.
The vast majority of consumers in India, nearly 90%, are still served by state-owned utilities. But discoms continue to be the weakest link in the supply chain of the power sector, with most of them making losses as a result of expensive long-term power purchase agreements, poor infrastructure, and inefficient operations, among others.
The losses prevent them from making the required investments to modernise the distribution infrastructure and improve the quality of power supply. The discoms’ inability to pay gencos, in turn, endangers the financial health of the generators and their lenders, causing a negative domino effect on the economy.
Discom bailout packages
The Revamped Distribution Sector Scheme is the fifth discom bailout scheme from the Centre in the past two decades and the third by the PM Modi-led government alone.
The scheme will offer discoms financial assistance for infrastructure creation, including pre-paid smart metering and feeder separation, upgradation of systems etc., based on pre-qualifying criteria.
The overall aim is to reduce pan-Indian aggregate technical and commercial (AT&C) losses to 12-15% from the current 21.73% and the gap between the average cost of supply and average revenue realised to zero by FY25 from the current 0.39 rupees per Kwh.
38 discoms have received funding approval to the tune of 1.9 trillion rupees after meeting the qualification criteria.
The schemes implemented so far have not been able to ensure a sustainable turnaround of both finances and operations of the discoms.
In May, the government notified a scheme to liquidate overdues that discoms owe gencos, by enabling them to pay their dues in 48 installments.
According to CRISIL, the success of the scheme will depend on how discoms are able to enhance their revenues and an enforcement mechanism that ensures timely payment to gencos.
Many states provide subsidised and sometimes free electricity for agriculture.
The total of annual power subsidy schemes and financial assistance across a sample of five highly-indebted states like Madhya Pradesh, Jharkhand, Andhra Pradesh, Punjab and Rajasthan adds up to Rs 42,155 crore.
Further, theft of electricity continues to be rampant in many parts of the country.
Tamil Nadu’s discom TANGEDCO owes Rs 25,760 crore to gencos
For instance, the Tamil Nadu government has proposed an electricity tariff hike after a gap of eight years, though experts say the quantum of hike is not enough to overcome the state discom’s financial crisis.
The latest scheme focuses on capex and a certain portion of the outlay under it will be in the form of grants. The availability of these grants will be subject to the concerned state discoms meeting certain performance milestones, which will be monitored by the concerned nodal agency over the next 5 years. So, there is clearly an attempt to make the scheme result-oriented. However, the distribution segment is a state subject. Thus, strong political will and support is required across state governments for the scheme to succeed.