Just as the UDAY scheme was meant to extinguish the liabilities of discoms, the proposed electricity distribution reform programme, too, seeks to give them the money on a platter
The Government is expected to announce a Rs 3,00,000 crore electricity distribution reform programme to reduce losses and improve the efficiency of power distribution companies or discoms. Christened ‘Reforms-Linked, Result-Based Scheme for Distribution’, the move is aimed at helping discoms trim their electricity losses to 12-15 per cent from the present level and gradually narrow the deficit between the cost of electricity and the price at which it is supplied, to ‘zero’ by March 2025. This is quite similar to the Ujwal Discom Assurance Yojana (UDAY) launched in 2015, wherein the targets were missed by a huge margin. The Centre’s planned electricity distribution reform programme will also meet the same fate as the real intent is not reform but to give money to the beleaguered discoms so that they can clear dues to power generators and other suppliers.
Meanwhile, amid the cacophony of farmers’ protest over the enactment of the three farm laws by the Narendra Modi Government, a demand that went unnoticed relates to doing away with an amendment to the Electricity Act (2003) that requires farmers to pay tariff for electricity supply at the un-subsidised rate even as the State concerned provides Direct Benefit Transfer (DBT) of subsidy to their bank account. Reportedly, the Centre has accepted this demand.
What it means is that the Centre will continue with the existing dispensation of supplying power at subsidised rates to farmers (in some States it is even free of charge). If it is done for farmers then logically, other beneficiaries of subsidised power, such as poor households should continue under the subsisting arrangement, too. You can’t have two different methods of delivering subsidy to different albeit vulnerable sections of society.
Do we then take it that the Government has junked its plan on DBT? A cursory glance at a spate of announcements coming from the top may help us in unraveling the truth in regard to the DBT or for that matter, fate of other reforms in this crucial sector. Under the special economic and comprehensive package for the ‘Atmanirbhar Bharat Abhiyan’ announced in May, Finance Minister Nirmala Sitharaman had provided for a special loan of Rs 90,000 crore from the Rural Electrification Corporation (REC) and the Power Finance Corporation (PFC) to discoms. This was done to enable them to clear their dues to independent power producers (IPPs) and generators in the public sector, such as the National Thermal Power Corporation (NTPC). But, this was conditional upon the discoms implementing reforms such as DBT of power subsidy, “open access” i.e. allowing consumer to draw power from a supplier of his/her choice and so on.
Sitharaman had linked the hike in the borrowing limit of States to the extent of 0.25 per cent of the State Gross Domestic Product (SGDP) (out of an overall increase of two per cent allowed to them) to power sector reforms. Of this, 0.05 per cent is predicated on the State reducing aggregate technical and commercial (AT&C) losses (a sophisticated nomenclature for theft) of its discoms, another 0.05 per cent to their reducing the gap between the average cost of supply and average revenue realisation (ACS-ARR gap) from the sale of electricity and the remaining 0.15 per cent to DBT.
Each State was required to formulate a scheme to roll out DBT to farmers in lieu of free electricity from 2021-22. The scheme has to be implemented in at least one of its districts by December 31. Based on the progress on the above three parameters, the Power Ministry was required to recommend (to the Expenditure Department under the Finance Ministry) the release of 0.25 per cent by January 31, 2021. Even prior to this, power sector reforms have been on top of the Central Government’s agenda. In November 2015, it launched the UDAY. The prime objective of the scheme which ran for nearly four years was to cut the losses of discoms by reducing AT&C losses and the ACS-ARR gap. These losses were a result of the increase in the cost of power purchase on one hand and supply to farmers at heavily subsidised rates on the other. They were required to reduce AT&C losses from 20.7 per cent during 2015-16 to 15 per cent by 2018-19. Further, they were asked to reduce the ACS-ARR gap from Rs 0.59 per unit during 2015-16 to ‘zero’ by 2018-19.
Simultaneously, the Government gave them a financial restructuring package (FRP). Put simply, this was nothing but condoning their debt of about Rs 4,00,000 crore (while 75 per cent of this was taken over by the States, for the balance, discoms were allowed to issue bonds at a preferential interest rate). The stated rationale behind giving FRP was to enable them start on a clean slate. In return, discoms were expected to set their house in order by achieving the milestones as specified above. But, they did not deliver.
During 2019-20, AT&C losses of discoms were 18.9 per cent against the target of 15 per cent for 2018-19. As regards the ACS-ARR gap during 2019-20, it stood at Rs 0.42 per unit against target of ‘zero’. This would mean that after initial reduction from Rs 52,000 crore during 2015-16 to Rs 17,000 crore during 2017-18, the discoms’ loss increased to over Rs 30,000 crore during 2019-20. In turn, this has led to a piling up of their dues to IPP/PSUs in excess of Rs 1,30,000 crore.
Faced with the same predicament as in 2015, the Government is working on a Rs 3,00,000 crore electricity distribution reform programme, which may be announced in the ensuing Union Budget. It was approved by the Public Investment Board (PIB) early this month.
The reforms are also aimed at improving the reliability and quality of power supply. It may also have a compulsory pre-paid and smart metering component to be implemented across the power supply chain, including in about 250 million households.
The Government is expected to contribute around Rs 60,000 crore to the scheme’s corpus and the rest may be raised from multilateral funding agencies such as the Asian Development Bank (ADB) and the World Bank (WB). The Centre’s contribution will be met through the previous commitment of the ongoing schemes viz. the Integrated Power Development Scheme (IPDS) and the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY). The funds will be released subject to their meeting reform-related milestones.
The proposed electricity distribution reform programme is more or less similar to UDAY but for the change of name and insertion of some catchy phrases such as Reforms-Linked, Result-Based and so on. One sees the typical syndrome of “old wine in a new bottle.” Just as the real purpose of the UDAY scheme was to extinguish the liabilities of discoms, the proposed electricity distribution reform programme, too, seeks to give them the money on a platter. This will help them clear their dues to power generators and keep some cushion to take care of future losses.
The talk of trimming AT&C losses or lowering the ACS-ARR gap to zero is laughable when seen in the backdrop of similar target having been missed in the past. Under UDAY, discoms were required to reduce AT&C loss to 15 per cent in 2018-19; now the reformers want this figure to be reached in March 2025. Similarly, the zero gap for ACS-ARR was targeted for 2018-19; under the new scheme, this gets shifted to 2025.
That the Government is not serious about the reforms agenda in the power sector, it has further vindicated by promising farmers that DBT of power subsidy won’t be implemented. DBT is a transformative reform. Under it, subsidy is given directly to the beneficiaries even as tariff is cost-based or market-determined. The discoms will set tariff in a manner as to fully recover their cost of purchase, wheeling and distribution thereby avoiding loss. They won’t also be saddled with pending subsidy dues from the State as then, the latter will be dealing directly with beneficiaries for subsidy transfer.
Under the DBT dispensation, discoms also need not charge more from industries and businesses which they have to do under the present regime to offset the loss suffered on subsidised sale to farmers and poor households. This in turn, will help the latter reduce their cost of operations and stay competitive. The new regime will also empower consumers as then, it will be easier to implement the “open access” policy thereby enabling them to source power directly from a supplier who offers the lowest tariff.
In short, DBT will be a win-win for all stakeholders viz. agriculture, industry, businesses, exchequer (both Centre and States) even as farmers have nothing to lose (as only the method of delivering subsidy changes).
However, the DBT’s launch is a pipe dream as all political parties irrespective of their ideological moorings — whether in the Government or in the Opposition — want themselves to be seen as supplying electricity to farmers free of charge. Hence they have a vested interest in continuing with the status quo. Till there is no political will to end this, there can be no real power reforms in India.
(The writer is a New Delhi-based policy analyst. The views expressed are personal)
