Four ways to recharge Uttar Pradesh’s power sector

The power sector in Uttar Pradesh is vital to India’s growth as it has a direct impact on a sixth of the country’s population. Unfortunately, the sector has had chronic afflictions over the years, such as high aggregate technical and commercial (AT&C) losses, regular and extended power cuts, power thefts, bleeding distribution utilities, questionable reliability of performance information, and last but not least, approximately 20 million households—or close to half of the 38 million in the state—with no access, or unrecorded access, to electricity. In other words, whatever could go wrong in the sector, did.

Come to think of it, electricity has always been an integral part of politics in India, and more so in Uttar Pradesh, the epicentre of it. When the Centre drew up the “24x7 Power For All” road map in 2015, all states except Uttar Pradesh were on board. Uttar Pradesh signed up only in 2017, a month after the Yogi Adityanath government took charge.

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The “Power For All” document lists the many steps required to achieve the ambitious goal. For Uttar Pradesh utilities, especially distribution companies (discoms), the road ahead is steep and dicey, requiring unflinching focus, determination and extensive think-throughs. The magnitude of the task at hand can be gauged from the fact that by 2019, Uttar Pradesh has to (1) nearly double its electricity-sector asset base, (2) plug in 11.2 million households, (3) formalize and meter around 8.4 million households with access to electricity, (4) meter another 6.8 million registered rural consumers, (5) halve AT&C losses even as losses get re-estimated after metering goals are achieved, (6) ensure round-the-clock supply to all consumers, and (7) achieve a financial turnaround.

These targets are not unattainable, but they present a fiendish challenge, especially since the seven milestones need to be crossed together, and some of them would work at cross-purposes. For example, an increase in rural electrification would crank up losses when the low-tension (LT) network is extended to low-paying consumers. That would mean that AT&C losses would increase, leading to a delay in the financial turnaround, affecting the ability to arrange capital and spend on network creation.

Changing the mindset of consumers—and making them pay for the services availed—is another daunting task. What’s good to see is that the Uttar Pradesh government is promoting such good behaviour even as it assures consumers of their rights, including quality of power supply and services.

To be sure, some of these seven tasks may spill over the 2019 deadline but once they have been completed, they will surely usher in a new era for the people of Uttar Pradesh. In this context, it would make sense for the state government to focus on four low-hanging fruits:

First is that 100% metering of all existing and upcoming consumers should be done on a war footing. This will help plug theft, revenue leakage and ensure that discoms get more money from the same set of consumers.

To do so, the new metered connections could be offered free or at concessional rates. This will result in more people opting for regular connections, especially the low-paying ones, who may otherwise find it difficult to apply for a new connection because of their inability to bear the notified cost.

Besides, to promote metering, the government could also offer cheaper power tariff to new rural domestic consumers. It could formulate a policy to charge lower capped tariffs for consumption of metered electricity by new rural domestic consumers for a fixed period, so that the latter are motivated to consume power through regular metered connections and not resort to illegalities.

Second, options to reduce the cost of power purchase need to be explored. One quick fix could be to swap the existing coal linkages of private and state power plants. This will help reduce the landed cost of coal.

Aggregation of coal linkage for different power plants could also be explored along with Coal India Ltd and its subsidiaries. This could help save on penalties and charges —or the so-called commitment charges—for lower coal offtake because of lower operational performance of old stations, and incentivise higher coal procurement at super-critical plants.

Also, phasing out or shutting down old expensive plants needs to be explored. These plants could be replaced with new, cheaper and more efficient ones.

Third, the time is right for the state government to provide direct, targeted subsidy to electricity consumers who can’t pay much, especially to rural consumers who are metered. The learnings from the liquefied petroleum gas (LPG) direct subsidy transfer project would come in handy here. This can also be complemented by smart metering and the mapping of all consumers under the government’s Urja Mitra scheme. This will make consumers aware of their rights and obligations. This can also be calibrated with better supply of electricity for consumers who opt for metering and make timely payments. This way, the state government would endorse the case for no power cuts for consumers who pay.

Lastly, an effective monitoring mechanism is imperative. The tasks at hand are multiple, onerous and critically integrated, so an independent monitoring mechanism is necessary to ensure deviation in one activity does not have an adverse impact on another. And also because work needs to be done simultaneously across the state.