Reforms short-circuited

A recent BusinessLine analysis (April 21) points out how the financial condition of power distribution companies has only worsened after the launch of the Ujjwal Discom Assurance Yojana (UDAY). Their dues to power generators, at over ₹41,000 crore, have been rising after the launch of UDAY in 2015. The aims of UDAY — reduction in aggregate technical and commercial losses, reduction of the gap between costs and revenue and tariff revisions — have not been met. A complex tangle of factors is responsible for the power sector being persistently in the red. A key factor is the problem of unaccounted power. The fact that all connections are not metered (and this is true even of urban pockets) means that discom estimates of consumption cannot be taken at face value. Electricity regulators have not been proactive enough in ensuring that ‘interface metering’, which would provide an account of offtake from a baseload station is complete and its record reliable. It is inexplicable that such meters are manual rather than digitised, allowing discoms to claim, often to their convenience, that their readings are prone to error. This lack of basic transparency allows for power theft, which is often attributed to farm consumption. Hence, ‘commercial losses’ are a bigger issue than ‘technical’ losses. While providing free power to agriculture is unadvisable for its ecological impact, the discoms too need to keep their side of the bargain — which is to serve rural areas with reliable supply of power, so that the people are willing to pay for it. The existing trust deficit has held up efforts to provide metered power, check theft and charge consumers appropriately. The onus, therefore, lies on the discoms to first improve the quality of power — for livelihood and economic functions — and the upkeep of infrastructure, before charging users more.

While the discoms have mismanaged supplies, they too have been overwhelmed by ecosystem changes. One of these is the falling cost of renewables. This has created a two-fold complication. Large consumers have moved to open access or captive generation, jeopardising the age-old cross-subsidy model of the discoms. Meanwhile, the discoms have locked themselves into costly long-term power purchase pacts with legacy generators. A way out of this is to ensure that large consumers get into long-term open access contracts. This will enable discoms to plan their power purchases more accurately. They should stick to short-term contracts. With the falling cost of renewables, discoms need to enhance their share. As for the cost of securing the grid from fluctuations that arise out of renewables generation, a CEA study estimates that this is not such a significant issue.

It is remarkable that electricity has reached all of India, thanks to a sustained 20-year effort. It needs to be clean, affordable and reliable for it to lift the economic and general well being of 1.3 billion people. Schemes like UDAY need a periodic reality check.

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