The government’s recent push to electrify all households by March 2019 has state bureaucrats and power distribution companies (discoms) scrambling to meet the target. Under the Saubhagya scheme, the Centre is providing financial support to discoms to provide last-mile connectivity to unelectrified rural and urban households, and incentivising states to meet their targets by December 2018. While the states might achieve these targets, it is ultimately their capacity to follow through on them that will determine whether people receive reliable electricity, and not just the connections.
In 2016-17, the combined losses of discoms in 26 states and Puducherry amounted to ₹ 40,295 crore. As some of the highest loss-making public entities in the country, discoms have received three bailouts in the last 16 years from the Central government, most recently through the Ujwal DISCOM Assurance Yojana. To better understand the preparedness of state agencies to execute the Centre’s electrification plans, the Council on Energy, Environment and Water (CEEW) engaged with discom officials, electricity regulators, consumer representatives, and distributed renewable energy practitioners in Bihar, Odisha and Uttar Pradesh, in late 2017. These stakeholders identified three key reasons for such losses and performance: under-recovery against supplied electricity, delays in disbursement of subsidies, and low willingness to pay for electricity in rural areas.
Under-recoveries are primarily the result of power theft and poor billing, and collection inefficiency. This limits discoms’ ability to service loans and to provide better facilities to customers. Power theft is still rampant across the country. In 2015, over 30% of rural households surveyed in ACCESS—India’s largest rural energy access survey covering 8,600 households from six of the most energy-deprived states—were of the opinion that people in their village stole electricity. The inability of discoms to produce accurate bills, based on actual usage, for a vast proportion of rural households, and to collect payments in a timely manner, considerably reduces the value that they are able to realize for the existing electricity supply.
Improving the efficiency and transparency of billing and collection processes will be important to reversing the trend of under-recoveries. Some states have begun working towards this. In Odisha, village-level electrification committees have helped locals get involved in discoms operations, easing manpower requirements for billing and collection. In parts of Bihar, these operations have been contracted to rural revenue franchisees, which receive performance-based incentives and penalties. Although automated billing and e-payments have begun in some areas, they should be rolled-out across the country. Not all solutions will be successful everywhere, but discoms must pilot and adopt options according to the local context.
The delay in disbursement of subsidies from the state to discoms affects their short-term working capital requirements. Experts have raised concerns that rapidly connecting rural households under Saubhagya may result in significant financial burden for discoms, which do not appear to be ready to serve tens of millions of newly-electrified households. In Uttar Pradesh, for instance, most new connections will be in below poverty line (BPL) households. Given the uncertainty around the disbursal of subsidies, discoms are, perhaps, proverbially digging their own grave as they extend connections to households with the knowledge that they may not recover the cost of serving these consumers.
In 2015, unelectrified rural households surveyed by CEEW had a lower willingness-to-pay for electricity than their real outlay on kerosene for lighting. This is likely the result of low purchasing power and poor electricity supply. When consumers are not willing to pay the fair price of electricity, it becomes challenging for discoms to finance the working capital requirements of good quality power supply and maintenance.
Further, as a consequence of the increased pace of asset deployment, discoms are afforded very little time for due diligence and for preparation of detailed project reports to plan their resource requirements. This aggravates the issue of poor service delivery in remote areas, which further lowers the willingness to pay. An ill-conceived transition could end with vast amounts of stranded power distribution assets. In Odisha, even as three-phase lines have been widely extended, there have been several instances of transformers burning out due to poor maintenance of distribution equipment. Such rapid pace of electrification, with little thought to capacity building, will only result in the sight of creepers growing on transformers becoming more common.
While the 100% village electrification target was widely celebrated recently, as many as 83% of the 38 million unelectrified households identified for Saubhagya in October 2017 still remain unelectrified today. We have a long walk ahead of us and must tread carefully. Policies on electrification need to account for the current financial state of discoms and carefully plan for the sustainable expansion of the distribution grid. While schemes such as Saubhagya are important to focus public and private efforts towards electrification, it is equally crucial for the Centre to plan for the requisite capacity building across the power sector of the country. Better planning on the human and technical capacity fronts of discom operations is required. As the number of electrified households increases, the operations and maintenance staff of discoms will also need to increase. Likewise, it is essential that the rural electricity infrastructure be augmented and be prepared to serve 24x7 power to all households in India. The Centre must plan for the power sector so that it can transition from being a financial burden to being an enabler of India’s economic development for decades to come.
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