India announces discom’ relief measures to ensure round-the-clock power supply

The union government has approved a financial relief package for the power sector, that entails a three month moratorium on state owned electricity distribution companies (discoms) to make payments for the electricity bought by them, and reducing the payment security amount by half for future power purchases.

These measures including waiving penalty for late payments, are part of the government’s efforts to ensure round-the-clock electricity supply during the three week long countrywide lockdown to prevent the spread of coronavirus (COVID-19) pandemic.

“Due to the lockdown, consumers are unable to pay their dues to the distribution companies (discoms). This has affected the liquidity position of the discoms thereby impairing their ability to pay to the generating and transmission companies,” union power ministry said in a statement on Saturday.

Given that state discoms don’t purchase the required quantum of electricity required due to their precarious finances, these measures may prompt them to meet the respective state’ power demands. It comes in the backdrop of the Reserve Bank of India permitting banks, NBFCs and other financial institutions to allow a three-month moratorium on payment of installments.

This comes amid the onset of summer and discoms owing ₹76,150 crore in dues to generators at the end of December. Mint reported on 26 March about the lockdown set to worsen the precarious finances of power discoms, as electricity demand load has shifted to homes, resulting in lower realizations.

The measures approved by power and new and renewable energy minister Raj Kumar Singh include; “CPSU Generation / Transmission Companies will continue supply/ transmission of electricity even to Discoms which have large outstanding dues to the Generation / Transmission companies. During the present emergency there will be no curtailment of supply to any DISCOM.”

There is an ongoing crisis in discoms due to their poor financial health, which has resulted in delayed payment to generation utilities. Domestic electricity connections account for around a quarter of India’s power demand and contribute towards a bulk of India’s average aggregate technical and commercial (AT&C) losses of 21.4%. Also, the gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized) for discoms is still substantial in most states.

To ensure timely payments by states to electricity generation utilities, the government last year had made it mandatory for state distribution companies (discoms) to offer letters of credit (LC) as part of the payment security mechanisms in power purchase agreements (PPAs) starting 1 August.

“Till 30 June 2020 the payment security mechanism to be maintained by the Distribution Companies with the Generating Companies for dispatch of power shall be reduced by fifty percent,” the statement added.

While India’s peak electricity demand has come down with commercial and industrial power demand taking a hit after many factories shut down, domestic consumption, which generates comparatively lower tariffs, has gone up. Of India’s total electricity demand load pattern, industrial and agricultural consumption accounts for 41.16% and 17.69%, respectively. Commercial electricity consumption accounts for 8.24% of demand.

“Directions have been issued to the Central Electricity Regulatory Commission to provide a moratorium of three months to Discoms to make payments to generating companies and transmission licensees and not to levy penal rates of late payment surcharge. State Governments are being requested to issue similar directions to State Electricity Regulatory Commissions,” the statement added.

India’s per capita power consumption, about 1149 kilowatt-hour (kWh), is among the lowest in the world. In comparison, the world’s per capita consumption is 3600 kWh.