Most of the problems of the power sector emanate from the poor health of the Discoms. Launched in 2015, “UDAY” (Ujwal Discom Assurance Yojana) was to provide much needed relief to these Discoms. However, it provided only a temporary relief, UDAY itself was a brilliant idea.

The approach outlined under UDAY had been successful in Gujarat. It turned around the power sector in that State. It was a model to be implemented in rest of the country and “UDAY” was an instrument to deliver that. But it didn’t happen, at least in the manner it was expected to.

Under UDAY, States were to take over 75 per cent of Discom debts as on September 30, 2015. This was to provide fiscal space to the Discoms and “improve” their balance sheets. However, certain important aspects of “UDAY” didn’t come to be highlighted or pushed. These included critical activities like reduction of AT&C losses, elimination of ACS-ACR gap, feeder metering, DT metering, price rationalisation etc. The debt transfer was supposed to provide time to Discoms to carry out the more critical part that was supposed to revive them in the medium term.

The Discoms got on board and utilised the facility of transferring the debt to the State government. This brought about an improvement in their financial health with some of them even showing profits. However, this transfer of the debt burden to the States can hurt them in the near future. Last year’s Economic Survey revealed that “due to these bonds, the States’ Gross Fiscal Deficit to GDP Ratio got increased by 0.7 per cent”.

Most of the Discoms failed to carry out mandates relating to reduction of AT&C losses, elimination of ACS-ACR gap and the like. Ironically, out of all UDAY States, 13 have actually reported higher AT&C losses as compared to previous year.

Most of the Discoms continue to be in trouble. The fundamental issues remain unaddressed. On account of such poor financial condition of Discoms, no new PPAs are being floated even though there is demand for power (incidentally, per capita consumption of power in the country is one of the lowest in the world and equivalent to the consumption in late 19th and early 20th century in the US). There is demand but the Discoms do not have the money to buy power.

Pricing dilemma

The pricing of power leaves Discoms with a peculiar dilemma. The more they sell, the more they lose. Consequently, this “lack of demand”, in turn, is impacting the health of power generating companies.

The poor financial condition of the Discoms has resulted in mounting dues that they have to pay to Gencos. Discoms owe Gencos more than ₹36,000 crore and the number is increasing by the day. As mentioned earlier, poor financial condition of the Discoms has also resulted in their failure to articulate the demand for electricity in the form of PPAs.

There are other factors as well that are impacting the finances of Gencos, but these two contribute substantially. They are unable to service their debt. Around ₹1.7 lakh crore could soon become NPA. This would impact both the coal and banking industry. As Gencos are not getting their dues from Discoms they are unable to pay regularly to Coal India where the dues have gone beyond ₹10,000 crore. The banking industry, already under pressure, is saddled with the additional problem of potential NPAs on account of non-performing Gencos.

Thus there is a vicious circle that has afflicted the energy sector and if the issues are not addressed expeditiously, there could be a serious crisis at hand that can impact the entire economy. A beginning has to be made with the Discoms. Without improving their financial health not much can be achieved.

Issues like separate feeder lines, auditing, strong action against defaulters and pricing will need to be addressed. It would require time and effort and it may not provide material for “headlines”. Other State officials will be required to sit with those from Gujarat and after understanding the “how” of this success story, make out their own plan. These plans cannot be “made” or “monitored” in Delhi. Intensive discussions will have to be held with all the stake holders to get their “buy-in”. This is critical for the success of any plan.

Coal production will need to be ramped up substantially. This has been done in the past and can be done again. The Coal Project Monitoring Group will need to be activated to facilitate faster clearances. Interaction will have to be increased with the States because that is where the action lies. Value proposition will have to be conveyed to the States as was done in the past.

The revival of such Gencos as are likely to become “sick” (some even before commencement of generation) is imperative. A high-level empowered committee needs to be set up to examine each stressed projects and work out a rehabilitation package.

Comprehensive package

Only financial restructuring will not help. The package has to be a comprehensive one. This could even entail change of ownership/management and/or adequate sanction of funds that are required for the projects. The committee should also be empowered to settle disputes, if any. Until and unless such a central mechanism is created, the issues will not be resolved.

The Gencos should also not be saddled with burden of cross subsidising the renewable energy sector. Promoting renewable energy is laudable. But it has a cost. This has to be borne by the society (through taxation) and not be entities that are already in trouble.

The power sector needs immediate attention before the country becomes “powerless”.

The writer is a former Coal Secretary

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