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Wednesday, May 19, 2021

Power under stress

Fall in demand, insufficient tariff hikes, high AT&C losses adversely impact discom finances. The sector needs reform

By: Editorial |
Updated: July 22, 2020 1:35:43 pm
Covid-19 India, India coronavirus, covid-19 coronavirus migrant crisis, migrants India lockdown, Indian express editorial The central government has proposed several amendments to the Electricity Act 2003 aimed at addressing some of these issues — the suggestions range from privatisation of discoms to moving towards direct benefit transfers for subsidies.

The financial position of power distribution companies has been deteriorating, well before the COVID shock. But the pandemic, and the ensuing lockdown, have aggravated their already precarious position by adversely affecting demand. At the aggregate level, electricity demand fell by 16 per cent in the first quarter of the current financial year. In large part, this decline is due to a fall in demand from industrial and commercial users. And as these consumers account for a sizeable portion of discom earnings — they also help subsidise tariffs for other segments — this fall disproportionately affects discoms’ financial position. According to ICRA’s estimate, discoms may be staring at a revenue gap of around Rs 42,000 to Rs 45,000 crore this year. This deterioration in finances does not bode well for the entire power sector chain. While the government had earlier announced liquidity support to the tune of Rs 90,000 crore to help discoms clear their obligations towards power generating companies, the off-take on these loans has been slow so far.

The stress on discom finances is evident from recent reports which reveal that the audited book losses of discoms have been revised upwards to Rs 49,600 crore in FY2019, from the provisional estimate of Rs 28,000 crore, inching closer to pre-UDAY levels. The mounting losses indicate that the UDAY scheme, which was expected to engineer an operational and financial turnaround in the fortunes of the beleaguered discoms, has failed to affect the change that was hoped for, with the gap between average cost and realisation per unit of power yet to be closed. In large part, this continuing deterioration in their position stems from inadequate and irregular tariff hikes, AT&C (aggregate technical and commercial) losses not declining to the levels envisaged, and delays in disbursal of subsidy by state governments.

The central government has proposed several amendments to the Electricity Act 2003 aimed at addressing some of these issues — the suggestions range from privatisation of discoms to moving towards direct benefit transfers for subsidies. While these and other reforms need to be pushed through urgently to ensure an improvement in the financial position of the discoms, they need to be supplemented with the imposition of stiff penalties on states for failing to usher in the changes needed, or meeting the targets laid out, to effect a turnaround in the sector.

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