Reforming discoms

| Updated on September 17, 2020 Published on September 17, 2020

While dealing with Covid-induced distress, long-term reform issues shouldn’t be overlooked

The steep fall in electricity demand with the onset of Covid-19 has pushed power distribution companies, already in dire financial straits due to a tangle of structural factors, into a deeper mess. Their dues of over ₹1 lakh crore to power generators — of which over ₹11,252 crore has been due to listed power companies for more than two years (Businessline, September 14) — cannot be paid off in a hurry, unless their finances are knocked into a semblance of order. Realising that the country cannot afford a sputtering power sector, the Centre earlier this month announced a relaxation in credit limits for discoms. Under the new arrangement, Power Finance Corporation and Rural Electrification Corporation will extend loans on a one-time basis to discoms over and above the working capital loan limit of 25 per cent of last year’s revenues (a cap laid down by the Ujwal Discom Assurance Yojana scheme of 2015) to meet liabilities towards gencos. The contours of a rescue plan were drawn up in May, when the Finance Ministry announced a ₹90,000 crore liquidity package for discoms.

However, the credit infusion should be accompanied by structural reforms. The financial troubles of discoms can be traced to the high cost of power purchased by them, the erosion of their customer base with the rise in open access and captive power generation, and finally, their operational inefficiencies. Thermal power costs have risen on account of poor fuel supply linkages and transportation costs from the mines to plants. Rapid capacity additions over the last decade, outpacing demand in recent years, contributed to lower capacity utilisation and, in turn, the transfer of higher per unit fixed costs to discoms. Discoms should refrain from entering into long-term contracts, given the rapid technological advancements in renewables, where prices are more than competitive vis-a-vis coal-fired power. Improvement in battery storage technologies is proving to be a game-changer, as a study by Prayas Energy Group shows. With bulk users opting for open access and captive generation, thanks to these developments, the discoms’ skewed cross-subsidisation model has come under stress — which, in fact, suggests a way forward.

Discoms will feel the pressure to trim technical and commercial losses. Agriculture losses can be curtailed by shifting to grid-based solar power — as rightly pointed out by the Union Power Minister. As for their universal service obligation of providing cheap power, direct benefit transfers will help deal with liquidity issues. Tariffs should be recalibrated to encourage use during lean hours. While discoms should not play foul by resisting consumers’ shift to open access, they should be allowed to charge more from consumers who shuttle between options. Even as cross-subsidy becomes unviable, tariff rationalisation should help them improve their finances and provide reliable, quality power to all.

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Published on September 17, 2020
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