According to PRAAPTI (Payment Ratification and Analysis in Power Procurement for Transparency in Invoicing of generators) – a portal maintained by the Ministry of Power (MoP) – , the legacy dues of power generating companies (gencos) from distribution companies or discoms in short came down from Rs 1,20,540 crore in June 2022 to Rs 61,025 crore in July 2023. If, we include dues of transmission companies (transcos) and traders also, then total dues of all those involved in electricity supply chain decreased from Rs 1,39,747 crore to Rs 69,957 crore during the same period.
The MoP has attributed this drastic improvement in clearance of dues by discoms to implementation of late payment surcharge (LPS) and related matters Rules, 2022 as well as the ‘Reforms-Linked, Result-Based Scheme for Distribution’ (RLRBSD) launched by the Union Government in July 2021 (the scheme was announced by the Finance Minister Nirmala Sitharaman in the Budget for 2021-22).
The LPS rules made it mandatory for distribution companies to clear their legacy dues as existing on June 3, 2022, in a time bound manner in 12 equal monthly installments (EMI) with the benefit of non-applicability of the LPS after its implementation date. The same rules also provided for time bound clearance of current dues failing, which these will attract power supply cut.
This was a sort of carrot and stick policy. On the liberal side, it provided for splitting the payment liability in 12 EMIs alongside total exemption from any penal provision for this one year period. On the stringent side, if the dues including current dues are not cleared within the 12 months, the discoms attract penal provisions.
One would have expected discoms to avail of this opportunity and clear all of their legacy dues besides ensuring that even current dues are not kept pending. But, they cleared only half. Hopefully, they would pay back the remaining 50 percent ‘promptly’ or else they run the risk of being penalized including cut in power supply. A more crucial point is whether the discoms are in a position to pay back.
For close to two-and-a-half decades, they have been under serious financial stress. We can get a sense of this by looking at the fact that since 2000, the Union Government has sanctioned for discoms four financial restructuring packages or FRPs (a jargon for condoning their accumulated debt) in 2002, 2012, 2015 and 2021. The irony is despite these FRPs, their total debt at the end of financial year (FY) 2021-22 was Rs 620,000 crore.
Discoms have borrowed on an increasing scale primarily to fund their gallopping losses year-after-year. The losses in recent years says it all 2015-16: Rs 52,000 crore; 2017-18: Rs 17,000 crore; 2019-20: Rs 34,500 crore; 2020-21: Rs 50,200 crore; 2021-22: Rs 59,000 crore; The dip during 2017-18 was due to a FRP in 2015-16 under which debt relief of Rs 400,000 crore was given.
The collateral damage of their persistent precarious finances was a pile-up of their dues to independent power producers (IPPs) and public sector power generators, such as NTPC, to Rs 1,39,747 crore as of June 2022. In this backdrop, how come discoms have garnered funds to pay back over 50 percent of their dues.
Here comes in the RLRBSD.
The Scheme identifies the aggregate technical and commercial (AT&C) losses – a jargon for power theft – and shortfall in the average revenue realisation from the sale of electricity vis-a-vis the average cost of supply (cost of purchase, wheeling and distribution), or the ACS-ARR gap, as major causes for losses of discoms and their resulting financial stress. Accordingly, it sets the target for both – AT&C losses to 12-15 percent from existing level and ACS-ARR gap to ‘zero’ – to be achieved by March 2025.
Under the Scheme, requisite investment is proposed for improving the reliability and quality of the power supply, reduce losses and improve the efficiency of discoms. It has compulsory pre-paid and smart metering component to be implemented across the power supply chain, including in about 250 million households. An outlay of Rs 300,000 crore is contemplated under it.
Of this, while the Centre is expected to contribute around Rs 60,000 crore, the balance Rs 240,000 crore is to be sourced from multilateral funding agencies such as ADB and World Bank (WB). The Centre’s contribution is met from the previous allocations of the ongoing schemes, viz. the Integrated Power Development Scheme (IPDS) and the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY).
RLRBSD has been under implementation for two years now. What is the outcome?
The AT&C losses of discoms went down from 22.32 percent during 2020-21 to 13.5 percent during 2022-23. As for the ACS-ARR gap, this has reduced from Rs 0.54 per kWh during 2020-21 to Rs 0.15 per kWh in 2022-23. Comparing these numbers with the targets, it turns out that discoms have already achieved the target for AT&C losses whereas in respect of ACS-ARR gap, the drop is impressive. At this pace, reaching zero gap by March 2025 is eminently possible.
Here, it is pertinent to note that under Ujwal DISCOM Assurance Yojana (UDAY) launched in November 2015 that costed the States’ exchequer a whopping Rs 400,000 crore, Union Government had aimed at reducing discoms’AT&C losses from 20.7 percent during 2015-16 to 15 percent by 2018-19. It also intended to reduce the ACS-ARR gap from Rs 0.59 per unit during 2015-16 to ‘zero’ by 2018-19. But, the outcome of that scheme was disappointing even as the targets were missed by a huge margin.
During 2019-20, AT&C losses of discoms were 18.9 percent against the 15 percent target for 2018-19. The ACS-ARR gap during 2019-20, stood at Rs 0.42 per unit against target of ‘zero’ for 2018-19. Since then, AT&C losses further increased to 22.32 percent during 2020-21 whereas the ACS-ARR gap scaled to Rs 0.54 per kWh during 2020-21. In sharp contrast, RLRBSD has done reasonably well.
A steep reduction of close to 9 percent in AT&C losses in two years clearly points towards the state governments making a dent on power theft being the result of strengthening and modernizing distribution infrastructure (courtesy, investment under the Scheme) on one hand and more effective monitoring and surveillance on the other. These efforts must continue. The states should aim at zero losses.
The revenue of discoms has also got a boost from the states releasing their dues for the electricity consumed by their departments and agencies owned by them. The states are also releasing their ‘subsidy dues’ being the excess of the cost of purchase, transmission and distribution over the subsidized tariff they ask discoms to charge from preferred consumers, viz. poor households and farmers.
While, this should help discoms in turning the corner, given the legacy handicaps (read: high debt and cost of servicing it), the Centre has galvanized state financial institutions such as PFC and REC to give loans to them (for instance, Rs 130,000 crore given under ‘Atmanirbhar Bharat Abhiyan’) – subject to prudential norms – to enable clearance of the dues as also meet working capital expenses.
RLRBSD has made a good beginning. However, sans long pending reforms in power sector, the momentum can’t be sustained. Electricity distribution should be de-regulated and consumers given the power to choose their supplier. And, states should give subsidy directly to the consumers.
Published in The Pioneer on August 14, 2023