Discoms see Rs 1,79,000 cr loss without subsidy in 2006-10

Noting that power distribution companies incurred a whopping loss of Rs 1,79,000 crore before subsidy during 2006-10 period, a high level panel has called for "radical" action to revive their fortunes.

The Shunglu Committee on financial health of power distribution companies (discoms) has suggested a slew of measures, including regular tariff review, management rejig and setting up of Special Purpose Vehicle to absorb their losses.

"During the five years period (from 2006 to 2010), losses were Rs 1,79,000 crore before subsidy and Rs 82,000 crore after subsidy. These losses were primarily because of the gap of about 0.60/kwh between average cost and average revenue," the panel said in its report.

According to the panel, headed by former Comptroller and Auditor General VK Shunglu, the time for immediate radical action is now and soft options are no longer available.

"It is observed that inadequacies and distortions in tariffs have been caused by actions and inactions of regulators, utilities and indeed the state governments," it noted.

Net loss after subsidies stood at Rs 27,000 crore in financial year ended March 31, 2010.

The figures are based on an analysis of discoms in 15 states, that account for 91% of total power consumption in the country.

"One primary reason for the distribution utilities not submitting their tariff proposals in time or in acceptable form is the state government's political sensitivity to any proposed increase in tariffs," the report said.

The panel, set up by the Planning Commission in July last year, pointed out that "regular and timely review and determination of retail tariffs is crucial to proper revenue realisation and in turn financial health of distribution utilities".

Further, the committee has suggested creation of a Special Purpose Vehicle that would buy the bank loans of discoms, subject to various conditions. The SPV's chairperson would be appointed by the RBI.

The panel's recommendations come against the backdrop of huge financial losses incurred by most power distribution companies (discoms), a scenario which has also raised concerns about loan defaults.

As per the report, the power utility's chief executive should be appointed through an all India selection process.