Massive discom losses—stemming from states’ largesse to certain groups of power consumers in the form of large subsidies and inability to act against power theft—are rightly blamed for not just impacting other power-sector players but also for some of the NPA mess in the banking sector. States have often been accused of insincere action on improving discom finances. However, a report by the Power Finance Corporation shows, just before Covid, discoms were attempting healing, with state governments playing a meaningful, if not catalysing, role. In FY20, aggregate discom losses fell to Rs 31,672 crore from Rs 49,103 crore in FY19; however, this was higher than FY18’s Rs 27,966 crore.
State governments paying a larger chunk of the subsidy billed contributed in no small measure—the subsidy received by state sector distribution utilities in FY20 was 94.58%, up from 89.05% in FY19 (marginally lower than FY18’s 95.19%). That said, the subsidy bill for all discoms, in absolute terms, has grown by 8% over FY19 and a whopping 29% over FY18. The subsidy gap, both in terms of billed and received, may be back to FY18 levels after having shot up in FY19, but the discoms have been able to make very little headway in billing efficiency and lowering AT&C losses, while collection efficiency has fallen, albeit marginally.
The AT&C losses for state-owned discoms, at 21.7%, were a long way from the UDAY target of 15% by FY19; indeed, thanks to the poor progress, the Rs 3 lakh crore “reforms-based and results-linked, revamped distribution sector” (RRRD) scheme moved the deadline to 2024-25.
While the states and the Centre reached a consensus on the RRRD scheme, the former sought and received an extension of the deadline for submission of their plans for turnaround; with so much of the scheme’s successful implementation riding on them, state governments must square off potential political dividends from large subsidies with fiscal pragmatism.
As this newspaper reported recently, state governments, along with departmental undertakings and companies under them, owed Rs 1.58 lakh crore to discoms at June-end; at Rs 97,088 crore, the unpaid bills of government departments (including civic bodies) was 1.6 times the subsidy payments due from the state governments. For perspective, discom overdues to gencos is at Rs 1.02 lakh crore at present, up from Rs 97,000 crore at the end of August. With the pandemic having hit MSMEs hard, revenue from commercial consumers is likely to get hit; so, discoms may be staring at larger losses even as the subsidy burden increases with lesser room to cross-subsidise household and agricultural consumers through larger tariffs on industrial consumers. Thus, for the RRRD scheme to work, states will need to reassess subsidies to consumer groups even as discoms work on improving billing and collection efficiency and lowering AT&C losses.
Most discoms won’t be able to face the competition from de-licensing of the distribution space that the draft Electricity (Amendment) Bill proposes. Sure, de-licensing needs an actionable plan—and to that end, key questions that ‘separation of carriage and content’ initiative faced (since this is conceptually similar) need answering. Nevertheless, discoms must gear up well in time, or simply cede space.