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Promise now, pay later ails power sector

With eye on reforms, Electricity (Amendment) Bill, 2022 to be introduced in ongoing monsoon session of Parliament

An analysis by The Indian Express shows free electricity announcements are not just limited to Opposition-ruled states. Key beneficiaries of free power in Tamil Nadu, Telangana and Maharashtra are farmers, small business establishments and also private households.

As the dues of power distribution companies (discoms) to power generators surge to unsustainable levels, with states holding back payments to be made to discoms for electricity supplies as well as against subsidies for free power schemes, the Centre is set to give distribution reforms a renewed push.

The Electricity (Amendment) Bill 2022, to be introduced in the ongoing monsoon session of Parliament, is likely to push state electricity regulatory commissions to take up timely revision of tariffs and catalyse competition in the retail power distribution sector, among other provisions.

This also comes amid a renewed debate on the freebie culture and the focus on the mounting dues of power distribution companies. According to latest government data, discoms of three states — Tamil Nadu, Maharashtra and Telangana — owed about 57 per cent of total dues to power generating companies (gencos); followed by BJP-ruled Uttar Pradesh and Madhya Pradesh and the UTs of Jammu & Kashmir, which account for another about 26 per cent of the total dues of Rs 1,14,222 crore owed to power generation companies. Government data updated till March 31, 2022 show that states owe Rs 62,931 crore for services and another Rs 76,337 crore against cost of freebies announced by them to state discoms.

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Among the states that have defaulted on payments to discoms, Telangana leads the chart with a cumulative outstanding of Rs 11,915 crore, followed by Maharashtra at Rs 9,131 crore. BJP-ruled Uttar Pradesh leads the pack among states that have not made payments to discoms for subsidies at Rs 18,946 crore, followed by Madhya Pradesh at Rs 16,240 crore. While the top three together owe Rs 65,041 crores, the next three BJP-ruled states owe Rs 29,280 crore of the total, according to a PRAAPTI (Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators) data till July 31, 2022.

Maharashtra was till recently ruled by the Uddhav Thackeray-led Shiv Sena and J&K is under Central rule since they were reconstituted as Union Territories in 2019.

Prime Minister Narendra Modi had said last month that the votes-for-freebies culture will hurt future growth and also flagged the mounting dues of power discoms. The statement came after the Aam Aadmi Party, which has governments in Punjab and Delhi and provides free electricity in both states, announced plans to provide 300 units of free electricity if it wins Gujarat, which polls this year.

An analysis by The Indian Express shows free electricity announcements are not just limited to Opposition-ruled states. Key beneficiaries of free power in Tamil Nadu, Telangana and Maharashtra are farmers, small business establishments and also private households. Among the next three, Jammu & Kashmir has, only in June 2022, cracked down on free power in the state and started installing meters. While Uttar Pradesh had, in its election manifesto early this year, announced free power for irrigation to farmers that is estimated to cost the state exchequer about Rs 2,000 crore per annum, Madhya Pradesh, in March this year, announced a one-time waiver of electricity bills valuing to Rs 6,400 crore.

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Industry watchers say that the solution could be in empowering the regulators to take tariff decisions. “The problem is all across and the biggest solution could be to empower the regulator to ensure timely tariff hikes. There should also be provisions to ensure that any freebies announced by the state should be through direct benefit transfer and not in a way that burdens discoms or power producers. Installing prepaid meters could be the first step in that direction,” said Anil Razdan, former Union Power Secretary.

Tamil Nadu raised power tariffs for households as well as the industry in July this year but continued with 100 units of free power for households and free electricity to power looms. The raise was only after the Central government forced it by writing 28 times to the Tamil Nadu government insisting upon restructuring the power tariff. It said the state would not get a Central subsidy if the debts were not reduced, state’s Electricity Minister V Senthil Balaji was quoted in reports.

Telangana, in April this year, announced to provide up to 250 units of electricity per month at free of cost to barber shops, laundry shops and dobhi ghats across the state. The state also provides free power to farmers.

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Maharashtra’s electricity board, which is reeling under severe financial strain, in November announced a 50 per cent waiver amounting to

Rs 4,000 crore on pending agricultural pump electricity bills. Media reports suggested that the state, under the previous government, did discuss a scheme to provide certain units of free power to private households but this was junked.

The BJP government in Uttar Pradesh, before the state went for poll last year, announced halving of farmers’ electricity bills. The state has also fulfilled its poll promise to provide free electricity to farmers tube wells, which is estimated to cost Rs 2,000 crore to the state exchequer. UP’s power distribution company has sought Rs 2,250 crore from the state that includes Rs 250 crore for implementing the pre-poll announcement.

Madhya Pradesh, another BJP-ruled state, in March this year, announced a waiver of electricity bills generated during the Covid period that will cost the state exchequer about Rs 6,400 crore.

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These waivers and freebies are one of the key reasons for the problems faced by the power sector, said a banker. “The power sector’s problem is freebies by states that have led to losses and delayed payments. Banks are not comfortable lending to the sector till such freebies continue,” said a banker.

Banks refused to lend to the power sector despite the Power Ministry asking banks to lend to companies to import coal and help overcome the power crisis faced by the country during summers this year.

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Among the states, Gujarat clearly is an outlier that has a dues of Rs 1,439 crore even lower than Haryana’s Rs 1,827 crore. Notably, Gujarat carried out reforms over the years in the power sector, including metering at the feeder level. The state brought in reforms in electricity being supplied to the rural areas by keeping separate power for agriculture and for rural households.

First published on: 08-08-2022 at 04:26:32 am
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