4 min read.Updated: 29 Dec 2015, 10:29 PM ISTAjit Ranade
Like power companies, the telecom sector has huge debts. Yet, they service their debts, keep prices low and remain profitable
Electricity and telephony became facts of modern life at roughly the same time. Wireless telephony had to wait till the middle of the last century, and the first mobile phone call was made much later. Electricity in the meantime spread far and wide. In most developed nations, access to it is counted as a basic right.
In India, presently 20% of the population still lacks access to electricity, whereas telephony has caught up and, in many parts of India, surpassed it despite mobile telephony starting much later. Hence, it is tempting to make this comparison: the power sector is still dominated by the public sector, while telephony is mostly in the hands of the private sector. When it comes to collection, the record is starkly dissimilar.
In telecom, even the poorest of the poor mobile customers pay their bills. That’s not true of electricity. We have about 79% overall teledensity—and almost 150% urban teledensity—but there is no mention of a non-performing asset in this sector. Like the power companies, the telecom companies too are carrying huge debts on their balance sheets, thanks largely to bids in the spectrum auctions and continuous capital expenditure.
Yet, they are able to service their debts, keep prices low and remain profitable, while also having fully paid customers. Telecom is also the bedrock on which financial, information technology, entertainment and other services reside.
Contrast this telecom health with the electricity sector’s woes. The latter is plagued with financial sickness. Power cuts are common in rural areas, and have now reached even large metro cities like Pune and Bengaluru. The plant load factor of power producers is at a 15-year low of about 65% for 2014-15. This means they are producing only 65% of their installed capacity. This is not because of lack of coal in thermal power-producing plants. Nor is it because of lack of demand from consumers, be they residential, commercial, industrial or even agricultural. It is mostly because the distribution companies (discoms) are making losses and unwilling to buy from the producer companies.
Unlike telecom, where a non-paying customer is unheard of, the discoms have both unbilled and unpaid use of electricity. The former is possibly a euphemism for theft, and the latter is counted as a receivable. The receivables have been mounting, but only show up on the balance sheet, not in the cash collected. Unlike telecom, electricity tariffs have to be approved by (state-level) regulators. If tariff doesn’t keep pace with costs, losses occur. But those losses could be due to non-collection or non-paying customers or theft too. The reluctance of some discoms to buy any more electricity is because the more they buy and sell, the more losses they incur. The total accumulated losses of all discoms are more than ₹ 3.5 trillion. Additionally they owe banks collectively about ₹ 5.5 trillion, as per a report by Credit Lyonnais Securities Asia. Of this ₹ 5.5 trillion, only eight states (Rajasthan, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Telangana) account for possibly ₹ 4 trillion. Who will write off these losses, and who will ensure that banks are repaid?
The discom problem is largely confined to state governments. The centre has offered a way out to the beleaguered state government-run utilities. The package called Ujwal Discom Assurance Yojana (UDAY) allows state budgets some relief from fiscal deficit limits, if used to bail out discoms. UDAY has other features too, like tariff reforms, compulsory metering and other efficiency measures. It will take years to nurse the discoms back to full health, to be on a par with telecom companies.
Of course, telecom customers are more than 90% prepaid, which is why the comparison is unfair. But surely there are lessons to be drawn. First, paying for electricity is a habit that needs to be inculcated and reinforced by a publicity campaign, which should include celebrities, community, social and religious leaders. Second, if electricity is to be elevated to a basic right, then its cost must be explicitly factored into the national budget, and not left to the states. An approach similar to the food security legislation can be taken. Third, with technology, we can offer a targeted P and Q subsidy, which is a combination of subsidized price and a rationed quantity. This ensures that the total subsidy is capped. Fourth, we need to experiment with the concept of prepaid cards for electricity. This may need some support from regulation and law enforcement, if automatic disconnection is the penalty for exceeding the prepaid limit. Fifth, we need more and genuine competition, especially in distribution. Has the open access policy promised by the 2003 reforms been implemented? Sixth are a slew of demand side management measures, which can reduce or optimize demand.
Apart from these, there are several other ideas worth exploring and experimenting with. Keep in mind that more than 300 million Indians will be moving to cities in the next two decades. Urbanization puts a heavy burden on the demand for electricity, in terms of availability and affordability. Also remember that with our Paris commitments and obligation towards renewable energy, the cost of electricity is not going down. Electricity must match the success of telecom. A phone needs a battery, and the battery needs electricity to charge! Their progress is thus intertwined.
Ajit Ranade is chief economist at Aditya Birla Group.
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