Producers feel the heat as power distribution losses widen

At least 10 states are losing about a third of the power supplied to their consumers in distribution losses. The situation has assumed alarming proportions with states struggling to pay for the electricity bought, resulting in some power generators being unable to buy fuel such as coal to run their plants.

This assumes significance against the backdrop of the National Democratic Alliance (NDA) government’s ₹2.86 trillion plan to usher in the tentatively named Atal Distribution System Improvement Yojana (ADITYA), which involves reducing electricity losses to less than 12% from India’s average aggregate technical and commercial (AT&C) losses of 21.4%. The scheme also aims at negating tariff gaps and having compulsory prepaid smart metering across the power distribution chain, including 250 million households.

Arunachal Pradesh has an extremely high AT&C of 58.06%, while for Jammu and Kashmir the figure is 53.67% and for Uttar Pradesh 38.29%, according to government documents reviewed by Mint.

To further exacerbate matters, the gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized) is yet to be bridged. This ranges from ₹2.13 per unit in Andhra Pradesh to 0.09 in Chattisgarh. Interestingly, Delhi, where electricity discoms were privatized in July 2002, registered the lowest loss of 9.7% in the country and a revenue gap of only 0.19 per unit.

“No system in the world is designed to take these kind of losses. Given that electricity is in the concurrent list, the states need to show political will to resolve this perennial problem,” said a senior Union government official involved in the designing of the ADITYA scheme, requesting anonymity.

Queries emailed to the power ministry spokesperson on 20 January remain unanswered.

Electricity discoms are the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments.

Discoms, which suffer from poor financial health, have delayed payments to power generation companies and owe them ₹81,320 crore as of the end of October.

The inability of discoms to make payments has also added to the pain in the Indian banking sector as clean energy developers are facing difficulty in servicing debt.

Against this backdrop, the Centre aims to introduce several reforms in the proposed national tariff policy, including penalty on gratuitous load-shedding, not allowing losses of more than 15% as a pass-through in tariff, and limiting cross-subsidies.

The policy also proposes suspension of licences in case of non-availability of adequate power supply arrangements and imposition of penalty in case of disruptions in supply.

The Union government is working on radical initiatives to help bring financial discipline to state electricity discoms.

These include withholding permission to the state to borrow to the extent of electricity losses not funded by the respective state governments and limiting discom loans of Power Finance Corp. Ltd (PFC) and REC Ltd to capital expenditure projects.