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Utilities in the Union territory of Jammu and Kashmir (J&K) reported the highest losses among power distribution entities in India, while some in the east and the northeast also incurred high losses, underscoring the lack of power sector reforms in these markets.

However, 15 state power distribution companies (discoms) in Andhra Pradesh, Gujarat, Tamil Nadu, Karnataka, Uttar Pradesh, West Bengal, Manipur and Madhya Pradesh narrowed their losses by more than 10% in 2019-20. Delhi clocked the lowest loss among discoms.

However, the narrowing of India’s gap between the cost of electricity bought (average cost of supply, or ACS) and supplied (average realizable revenue, or ARR) to 28 paise per unit in 2019-20 led to a fall in discom losses by more than a third to 38,000 crore from 61,360 crore in FY19, according to government data.

J&K recorded aggregate technical and commercial (AT&C) losses of 60.5% in the year ended March 2020. The high loss figure of J&K was followed by Nagaland (52.9%), Arunachal Pradesh (45.7%), Bihar (40.4%) and Tripura (37.9%). Also, the ACS and ARR gap is the highest in Nagaland ( 5.62 per unit), followed by Arunachal Pradesh ( 4.92 per unit), J&K ( 1.85 per unit), Meghalaya ( 1.80 per unit) and Tamil Nadu ( 1.27 per unit).

While Delhi clocked the lowest discom loss of 10.3%, it was Himachal Pradesh with the least ACS and ARR gap of 0.01 paise per unit.

Discoms have traditionally been the weakest link in the electricity value chain, plagued by low collections, rise in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.

Experts said states with high discom losses reported limited power sector reforms, leading to this situation. “Utilities in Jammu and Kashmir and the North-East had limited sectoral reforms over the last two decades— around governance, network and technology capital investments, tariff reforms, structured PPP (public-private-partnership) and capacity building. Quality, reliability and customer service is significantly low, which in turn is impacting economic development. Need political will, reforms and investments to bring down financial and commercial losses," said Sambitosh Mohapatra, leader for ESG, energy utilities and resources practice, PwC India.

J&K and Ladakh are also part of the Union territory electricity privatization process, with other UTs being Chandigarh, Andaman and Nicobar Islands, Dadar and Nagar Haveli, and Daman and Diu.

Meanwhile, the Electricity (Amendment) Bill, 2021, which aims to de-license power supply, allowing multiple distributors in the same area, and giving consumers the option to switch power suppliers, is slated to be introduced in the Lok Sabha during the ongoing monsoon session.

As part of the government’s reform push, the cabinet committee on economic affairs (CCEA) last month approved the marquee 3.03 trillion power discom reform scheme that has a compulsory smart metering ecosystem component. The reforms-based result-linked power distribution sector scheme to be applicable till 2025-26 aims to reduce India’s AT&C loss to 12-15% from 21.83% in 2019-20, and gradually narrow the deficit between the cost of electricity and the price at which it is supplied to ‘zero’ by 2024-25.

“Reduction in the ACS-ARR gap is extremely encouraging, particularly when access in rural areas has improved significantly over the last half a decade. The focus of the central government on smart metering will yield further benefits as the experience has indicated commercial loss reduction in areas where these have been deployed," said Shubhranshu Patnaik, a partner at Deloitte. “The distribution and sub-transmission grid has been in dire need of modernization, and we need a sustained focus on efficiency to create the headroom for capital investments without over-burdening the consumers."

Some experts believe the discoms’ financial health weakened last fiscal amid the pandemic with the demand load shifting to homes, resulting in lower realizations. This has since recovered, with India’s peak power demand recording a high of 200-gigawatt (GW). India has an installed power generation capacity of 383.373GW.

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