Despite availing a Centre-sponsored Rs1.93 lakh crore bailout package three years ago, the power distribution sector is now again showing signs of financial stress, bringing to the fore the harsh reality that electricity tariff reform remains a non-starter.
The moot question is whether States alone are to be blamed for this messy situation or there is flaw in reform strategy, tooIJ
We all know a fifth of power generated in the country is lost to theft and does not generate any revenue for power distribution companies (discoms). If utilities want to recover cost-reflective price for electricity supply, they will have to make up for lost revenues by charging extra from consumers, a move that would lead to an inflated tariff. That is exactly the dilemma that most of utilities face when seeking tariff revision.
No wonder, despite repeated attempts by the Centre to persuade States to expedite electricity reforms, not much has happened on this account and power distribution utilities continue to reel under heavy losses due to the wide revenue-expenditure gap. Plugging the financial hole would also help narrow the gap for utilities and ease upward pressure on tariff hike.
Moreover, electricity generation being a highly capital-intensive business (at least Rs5-6 crore needed for putting up 1 mw capacity), India would make huge savings if it could plug the leakage.
Checking the leakage is also critical to realising the Narendra Modi Government’s goal of 24X7 power supply for all by 2018-19. The power distribution sector’s aggregated technical and commercial (AT&C) losses are currently estimated at 27 per cent. However, the blueprint prepared by the Centre for universal and uninterrupted power supply assumes commercial losses at the much lower level of 17.5 per cent. That means overall power sector losses must be brought down by about 10 per cent to realise the dream of uninterrupted power supply even if envisaged capacity target is fully achieved.
Significantly, the Modi Government is pursuing legislative changes to pave the way for separation of power supply and
wire ownership business in a bid to implement open access provisions
of the Electricity Act 2003 in letter and spirit.
The idea is to encourage competition in the market through entry of multiple suppliers and enable consumers to source their electricity supply from wherever they want.
The failure of the Financial Restructuring Plan (bail-out package) should send alarm bells ringing among policy makers. Just three years after the package was announced by the Centre, power distribution sector is again showing signs of financial stress, forcing the Reserve Bank of India to raise fear that loans of Rs53,000 crore advanced by banks to power distribution companies could become non-performing assets.
After enhanced devolution of divisible pool of taxes to states following the 14th Finance Commission’s recommendations, the fiscal space has considerably shrunk for the Centre. So if the power sector faces financial crisis again similar to the one it encountered in 2012, the Centre may not have the necessary resources to bail it out. Under the prevailing scenario, States will have to accept financial accountability for their power sector.
Power sector losses in developed countries are less than 10 per cent. In contrast, AT& C losses in India are estimated at the staggering level of 27 per cent, a national average, due to widespread power theft. So there is a huge scope for making savings by cutting losses.
The rot runs deep as most of power theft cases happen in connivance with utility staff. So there is a need to build a strong political consensus at the national level to fight the deep-entrenched culture of power theft. Stamping out power
pilferage is also a moral imperative as it is honest consumers who
have to pay for illicitly consumed electricity.
The importance of fighting power theft from the perspective of systemic stability cannot be overstated. As we all know, power distribution is the only point where revenue is generated for the entire industry. If distribution reforms are not implemented on an urgent basis, investments into generation and transmission could also dry up creating power shortages that would choke our economic growth.
Under the Restructure Accelerated Power Development and Reforms Programme, or R-APDRP, the Centre is offering incentives to States to cut their AT&C losses. In addition, States have set up special courts to try cases of power theft. Now the time has come these efforts are complemented with a political push.
The national leadership should take initiatives to build a political consensus over the urgency to control power theft and bring down AT&C losses to reasonable levels. Prime Minister Modi can call a meeting of Chief Ministers to build a consensus over power reform agenda.
The Centre will have to follow a carrot-and-stick policy to prod States to fight power theft which threatens to nullify all efforts to reform the power distribution business.
(The writer is a Delhi-bases commentator on power and security issues)