The twin problems of AT&C losses and under-recoveries on sale to certain households or farmers in some States have existed for close to a quarter century

The Centre is planning to launch ‘another’ scheme to enable public sector power distribution utilities (discoms) to cut technical losses via "transition financing" of the required capital expenditure. The discoms stand at the core of the power supply and distribution network in the country. Mostly owned and controlled by State Governments, they buy electricity from the generating companies (call them gencos) in the public sector such as National Thermal Power Corporation (NTPC) etc and gencos in the private sector commonly referred to as independent power producers (IPPs) and supply to the consumers.

Technical losses to be more precise, the aggregate technical and commercial (AT&C) losses are a sophisticated nomenclature for leakage from the system or power theft. According to Union Power Minister RK Singh, AT&C’s losses used to be high at 27 per cent. When, out of say 100 units of electricity that leaves the generating stations/power dispatch centre, 27 units are stolen and hence not paid for, this is bound to have a debilitating effect on the discoms’ operations.

The discoms could charge more on sale of the balance 73 units to compensate for the ‘nil’ revenue on the 27 stolen units. But this is theoretical. So, the discoms would end up making a loss to the extent of revenue lost on stolen units. There is another potent factor that exacerbates their losses.

The Electricity Act (2003) and the Guidelines issued by the Ministry of Power require the discoms to fix the tariff on electricity supplied to consumers in a manner such that the average revenue realisation (ARR) from its sale is equal to the average cost of purchase, transmission and distribution (ACS). Yet under diktat from the State Government, either they don’t bill certain households (HHs) at all (on consumption up to 200/300 units a month in Delhi/Punjab) or a flat subsidy of `800 on consumption (between 201 and 400 units a month in Delhi), besides free supply to farmers as in Punjab.

The discoms seek to make up for the resulting under-recoveries by charging more from industries and businesses for which the tariff can go up to a high of `16 per unit (this indeed is a major reason for making Indian products and services uncompetitive in both the domestic and international markets). While the States also promise to compensate for a good portion of the under-recoveries, most of them make only partial reimbursement and that too after considerable delay. This further adds to discom losses.

The twin problems of AT&C losses and under-recoveries on sale to HHs/farmers have existed for close to a quarter century. Since the beginning of 2000, the Centre has come up with four financial restructuring packages (FRPs) to help discoms. While, the first two (2002, 2012) merely sought to condone their losses, the third namely Ujwal DISCOM Assurance Yojana (UDAY) launched in November 2015 required discoms to set their house in order and achieve certain milestones in exchange for financial assistance.

Under UDAY, discoms’ staggering debt of about `400,000 crore was condoned. Of this, while 75 per cent was taken over by the States, for the balance, they were allowed to issue bonds at a concessional rate of interest. In lieu of the FRP, discoms 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 to reduce the ACS-ARR gap from `0.59 per unit of electricity during 2015-16 to ‘zero’ by 2018-19. But, the discoms failed to deliver.

During 2019-20, their AT&C losses were 18.9 per cent against the 15 per cent target for 2018-19. The ACS-ARR gap during 2019-20 stood at `0.42 per unit against target of ‘zero’ for 2018-19. During 2020-21, even these limited improvements were reversed as ATC losses zoomed to 22.3 per cent and ACS-ARR gap `0.69 paise per unit. As a consequence, discoms losses which had decreased from `52,000 crore during 2015-16 to `17,000 crore during 2017-18 (courtesy, FRP) increased to about `30,000 crore during 2019-20 and further to `58,000 crore during 2020-21.

Correspondingly, this has led to their ballooning debt which at the end of FY 2021-22, stood at `620,000 crore.

This prompted the Centre to come out with a fourth package called ‘Reforms-Linked, Result-Based Scheme for Distribution’ (RLRBSD). The scheme was unveiled by Finance Minister Nirmala Sitharaman in her Budget speech for FY 2021-22. Involving an outlay of `300,000 crore, it was aimed at trimming discoms AT&C losses to 12-15 per cent and gradually narrow the ACS-ARR gap to ‘zero’ by March 2025. This was to be achieved by upgrading the distribution infrastructure and capacity building, thereby improving the reliability and quality of the power supply. It had a provision for compulsory pre-paid and smart metering component to be implemented across the power supply chain, including in about 220 million households.

Apart from gross budgetary support (GBS) of close to `100,000 crore by the Centre, implementation of the Scheme involves funding by State-run sector-specific lenders; viz, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) under irrevocable State Government guarantee. The funds release is subject to discoms meeting the pre-qualifying criteria and achieving the basic minimum benchmark in reforms.

The RLRBSD launched in FY 2021-22 talks of achieving the targets, which should have been achieved by 2018-19, by March 2025. This by itself is laughable.

What about the progress? According to the Power Ministry, the Government has so far identified 57 discoms from 32 States and Union Territories under the scheme and has prepared detailed project reports (DPRs) for these. Further, in reply to a question in Parliament given by then Power Minister RK Singh in December 2023: "Till today, DPRs having total outlay of `120,000 crore has been approved for loss reduction works and `130,000 crore for smart metering works."

Beyond this paperwork, as of January 2024, the total loan disbursed by PFC-REC under the scheme was `112,000 crore for 16 States, while sanctioned amount was `133,000 crore.

As for the gross budgetary support, the release of funds by the Centre during FY 2023-24 was a mere `6,000 crore against budget allocation of `12,000 crore. That things are moving at a snail’s pace may be seen from the fact that ‘against the sanctioned smart meters of around 220 million, only about 0.8 million have been installed so far’. One wonders whether the money is being used by discoms to merely pay back the loans taken earlier to fund their recurring losses --- as happened under UDAY.

Now that the tenure of this scheme (launched in 2021-22) will end in just about 10 months on March 31, 2025, the Government is keen to launch its second version call it RLRBSD- II with similar aggregate outlay of `300,000 crore. Who knows, even the funds garnered under this scheme could end up being used to clear the continuous pile up of discoms’ debt. The vicious cycle continues.

The problem is entirely political. In a bid to win elections (these are held round the clock), almost every political party promises sops which include, among others, power supply to farmers and poor households at throwaway price or even free; they even ignore theft happening in slums/jhuggis that promise votes en masse. They use discoms as ‘guinea pigs’ for achieving these populist goals.

(The writer is a policy analyst, views are personal)