A big headache for Modi – government is galloping losses of state electricity boards/power distribution companies [SEBs/PDCs]. This had a debilitating impact on their ability to supply electricity to consumers and industrial/business establishments despite plentiful availability [courtesy, huge step up in production and timely supply of coal to generating stations besides big boost to renewable energy]. The logic is simple.
Since, SEBs/PDCs are perennially incurring loss [as on September, 2015, their accumulated loss stood at Rs`380,000 crores and outstanding debt at Rs`430,000 crore], they are unable to make timely and full payment for their purchase from independent power producers [IPPs]. So, the latter suspend supply which former cannot make up by increasing generation from their own plants either as due to cash crunch, they cannot pay for coal and other inputs.
The losses arise because average revenue realized [ARR] from sale of electricity is significantly lower than average cost of supply [ACS] for majority of SEBs/PDCs. This in turn, is due to subsidized tariff fixed by concerned state in respect of supplies to households and farmers [in some states, it is even free] and large-scale technical and commercial [T&C] loss – a commonly used euphemism for power theft.
For power sold by SEBs/PDCs to industries and businesses, the states fix exorbitant tariff. Yet, extra collections from them are meager in comparison to the unprecedented short recovery due to the aforementioned two factors. Overall therefore, ARR falls substantially short of ACS leading to persistent losses.
In March 2015, the government launched Ujwal DISCOM Assurance Yojna [UDAY] to salvage SEBs. It had two broad components. First, they were given a huge financial relief to clean up their balance sheets. Under a financial restructuring package [FRP], states were to take over 75% of their outstanding debt. For balance 25%, they were allowed to issue bonds [at concessional interest rate] guaranteed by states.
Second, they were required to reduce T&C losses and increase tariff in a calibrated manner to ensure that in future, ARR equals ACS and loss are avoided. To help them in this endeavor, central government promised supply from IPPs at competitive rates, uninterrupted supply of coal in required quantities to generating stations, and support – both technical and financial – to enable states strengthen transmission & distribution [T&D] infrastructure for timely evacuation of power from stations and reaching to consumption points.
In short, this was an extraordinarily benevolent package that thoroughly cleaned up the balance sheets of SEBs/PDCs on the one hand and gave them necessary wherewithal to do better.
Yet, it is ironical that SEBs/PDCs even while enjoying the fruits of FRP [by December 2016, they saved close to Rs 12,000 crore in interest costs], they have faltered in achieving the milestones set for them under the scheme. Of 27 states covered under UDAY, only 10 revised tariffs for 2017-18 and even out of these, for 6 states, the increase was less than the target. Discoms in Uttar Pradesh have not even filed petitions for tariff revision to the state regulator so far.
As regards T&C losses, these slipped in 12 UDAY states from the levels in March 2016. Even in states where there was reduction, in 12 the decline was below the target. In Bihar, the loss was 45.7% against target of 36.4%. In UP, this was 33.2% against target of 28.2%. In J&K, the loss was 70% against target of 46%. And, for Jharkhand, this was 33.4% vis-à-vis target of 28.4%. Goa, Rajasthan and Gujarat are the only states which could achieve their respective T&C loss reduction targets for April-December, 2016.
In a scenario wherein nearly 1/3rd to 70% of electricity supply is not paid for [this represents mostly theft and to some extent technical loss], it is impossible for discoms to match ARR with ACS. In fact, any amount of increase in tariff to consumers sans farmers and poor households [political establishments of all hues consider them to be vote banks and therefore, refrain from charging them more than what they think is best suited to their interest] will not help in bridging this gap.
Power theft cannot be divorced from corruption. It cannot happen without the thieves acting in connivance with officials in the establishment. Indeed, it is a quid pro quo between the two whereby former draw electricity straight from the pole or via installation of faulty/slow meters [or power being consumed without a meter] and in exchange latter get corruption money for not taking note of it; forget taking stern action.
Tragically, the loot has been institutionalized. So, you have a local leader/MLA/MLC who arranges for unauthorized access to electricity in a locality say for 1000 families or even more [depending on the area under his command] and collects a fixed monthly amount from each household. This way, even as he gets a big booty [shared with all his collaborators in the establishment], families are also happy as they pay less than what they would otherwise have paid to discoms.
In consonance with Prime Minister’s overarching philosophy of zero tolerance for corruption in all government activities, the states should aim at zero T&C losses or no theft. Yet, even the target set under UDAY for different states range from 28.2% in UP to 46% in J&K. In other words, even the union government has got reconciled to certain minimum level of theft!
In view of above, SEBs/PDCs will never be able to become financially sustainable entities. No matter how many times the centre and states clean up their balance sheets [during the last 15 years, 3 such cleaning up operations viz. 2002/2012/2015 have been done], they will accumulate losses again and again. The need for UDAY [albeit its new incarnations] will never subside.
There may be some consolation that unlike past bail-outs, UDAY does not entail any burden on the central government but this will be very stressful for states. Already, without it, latter’s fiscal deficit has touched a 13-year high of 3.4% of their GDP during 2016-17 [up from 2% in 2012-13]. This is much higher than 3% allowed as per Fiscal Responsibility and Budget Management [FRBM] Act. With UDAY, this will further spin out of control.
Modi needs to crack the whip on power thieves and their collaborators in the establishment; only then the discoms would become financially viable entities ready to meet the demands of a growing economy.