Over twelve months after Union Power Minister R K Singh asked the Central Electricity Authority (CEA) to develop norms regarding “establishment costs” of power distribution companies (discoms), the CEA — the apex policy advisory body in the electricity sector that works under the Ministry — is yet to come up with the norms.
The minister had given the CEA a week’s time to come up with these norms — which include office cost, metering cost and employee cost and is significant as establishment cost currently varies across the states due to factors such as vintage infrastructure, scattered population and difficult terrain.
During a conference of state power ministers on December 7, 2017, a senior official of Ministry of Power stated that the average establishment cost of states, which are participating in the UDAY scheme, was Rs 0.67 per unit – 13 per cent of the average revenue realised (ARR). However, for many states, it was higher than the average – upto Rs.1.73 per unit.
Therefore, it was discussed at this conference that the establishment cost has to be controlled in order to improve the financial health of discoms across the country. Most discoms across the country work under respective state governments and the central government started the UDAY scheme in order to improve their financial health as they have huge debt. Discoms supply power to consumers after purchasing it from generating companies.
At last year’s conference, after deliberation and discussion, Singh directed CEA to work out the norms for establishment cost and submit the details within a week. However, even though more than year has passed, no norms have been developed as yet. CEA works under the Ministry of Power.
To curb discoms’ debts, need to cut establishment costs
The purpose of the UDAY scheme, which was launched in November 2015, is to do financial and operational turn-around of power distribution companies (discoms). In India, states largely control their respective discoms. In order to curb the massive debt of discoms, states understand that they need to curb the establishment cost for their respective discoms. However, there are no guidelines as such till date on how to do that. The central government expects that once the guidelines are issued and incorporated in the UDAY scheme, states will get an incentive to curb the establishment cost.
“The establishment cost for a discom depends upon several factors such as area of jurisdiction, its location, type and category of consumers and vintage infrastructure. Further, nowhere any such database or study, nationally or internationally, is readily available to analyse and evolve a methodology to standardise the norms for establishment cost. However, CEA is still endeavouring to develop some norms. It is under process and will be submitted in due course,” a CEA official told The Indian Express.
At the state power ministers’ conference on December 7 last year, Joint Secretary (Distribution), Ministry of Power, informed that average power procurement cost of the UDAY participating states in the 2016-17 was Rs 4.22 per unit. “Further analysis shows that some States have even lower procurement cost but their establishment cost was higher,” the minutes of the conference said.
“The average establishment cost of UDAY participating states was Rs 0.67 per unit (13 per cent of ARR) but for many states, it was higher than the average – upto Rs.1.73 per unit. This brings opportunity of potential savings of about Rs 10,000 crore, if the establishment costs were reduced to the extent of average of UDAY States,” the minutes added.
“Himachal Pradesh raised the issue of higher establishment cost due to hilly terrain and scattered population. Some of the states were of the view that norms for establishment cost for providing electricity per 1000 consumers needs to be worked,” the minutes stated.
The Ministry of Power stated on Wednesday that more than Rs 34,000 crore interest cost has been saved by discoms under UDAY within two years. “Revenue gaps have been bridged by 72 per cent within two years of operation of UDAY scheme. The national level ACS-ARR gaps are at 17 paise per unit in FY18 as compared to 60 paise per unit in FY16,” the Ministry added. ACS means average cost of supply.