Power discoms to get five more years to turnaround under new scheme

State-owned power distribution companies (discoms), which continue to make financial and operational losses, will get five more years for turnaround under the new ‘Reform linked Distribution Scheme’ to be floated by the Centre. The targets stipulated in 2015 under the UDAY scheme could be extended till 2024-25.

The earlier discom reform scheme UDAY concluded in FY20 with most of the states failing to meet their stipulated targets. The Aggregate Technical & Commercial (AT&C) losses or power supply losses due to inefficient systems were supposed to come down to 15 per cent and average cost-revenue (ACS-ARR) gap of discoms, down to zero by FY20.

However, AT&C losses currently stand at 23.9 per cent and cost-revenue gap at 0.53 paisa, according to the UDAY portal. The numbers are the national average of last available data of all discoms of FY20 and indicative data of six states during Q1FY21.

In a presentation made during the States Power Ministers’ Conference in July, union power ministry officials said ‘Reforms Linked Distribution Scheme’ will have the deadline of 2024-25. “The main objectives of the scheme are to improve the reliability and quality of power supply; enhance the financial and operational performance of utilities and reduce AT&C losses to 12-15 per cent and ACS-ARR gaps to zero by 2024-25,” he said.

Business Standard has reviewed the minutes of the meeting. The power ministry in its presentation stated the funds under the scheme would be released in proportion to the achievement by the discoms against the mutually agreed targets in the action plan. UDAY had similar scheme design wherein funds for schemes and loans by financial institutions were linked to loss reduction of the discoms.

Sources said the scheme could have an estimated capital outlay of Rs 2-2.5 trillion and would aim at better infrastructure, smart meters and private franchisee model for improving power supply in the states.

“India is embarking on another discoms' reform. The expectation is that this new reform will incorporate the learnings from UDAY 1. The need of the hour is to build enough incentives and penalties in the new system to drive the performance on key parameters,” said Mohit Kumar, senior vice president, IDFC Securities.

This new reform scheme comes at a time when the Centre has already rolled out a special loan scheme for the discoms in lieu of bringing down their losses and dues to the power generating and transmission companies which touched a record Rs 1.11 trillion in July.

In June, the Finance Minister in her ‘Aatmnirbhar Bharat’ to boost the economy, announced a special loan scheme for the discoms at an estimated outlay of Rs 90,000 crore. To avail the loan, the state government would need to clear the dues of government departments to the discoms and also give state guarantee to the lenders. The discoms would also need to indicate a trajectory of loss reduction-–both financial and operational.

Several states have now cleared their dues and the total dues came down to Rs 42,131 crore at the end of July.

At the same time, the union ministry of power has introduced several amendments to the Electricity Act, 2003 to enable turnaround of discoms. This includes encouraging states to tie-up private franchisee for power supply, introduce Direct Benefit Transfer (DBT) of electricity subsidy and phase out cross-subsidy charges levied on industrial consumers.

But several states including Bihar, Rajasthan, West Bengal, Odisha and Kerala have opposed this proposal citing threat of privatisation and increase in the rates of electricity. Some states also mentioned implementation challenges for DBT in electricity.

The ministry of power however pointed out that these were only enabling provisions for use by discoms which may want to give out some areas to franchisees/sub-licensees at their discretion. Officials said DBT in electricity will improve energy accounting and ensure that the discoms get paid for the electricity supplied.

“Ideally, privatisation should play a key role be it franchisee or sub-licensee or outright sell of discoms. Hope the new approach this time will build a new distribution system fitting for an era of widely distributed generation and increased usage of the electricity in a modern economy which India aspires for ,” Kumar said commenting on the proposed amendments.