Since neither the generosity of the government nor the fiscally expensive financial restructuring is producing the desired result of saving the power failures from the eternal defaulters in the debt trap, the government has decided to make the terms of the latest program announced in the FY22 budget stricter and not flexible. It also accelerates a plan to instigate real competition in the power distribution field.
The promised grants to state nightclubs under the budgeted Rs 3.1 lakh crore program would be converted into loans unless they met the parameters to reduce their sticky losses, Union Power Minister RK Singh told FE. The minister also said he intends to propose a bill amending the Electricity Act in the ongoing parliamentary session to allow multiple discos to operate in each area and end the current monopoly regime in the electricity distribution business.
To prevent new players from picking out lucrative supply circles, states must also set up a “cross-subsidy fund” so that disco markets do not receive undue advantages due to the higher mix of industrial and commercial consumers in their respective areas, said Singh called. State electricity regulators will need to clearly quantify the cross-subsidy component while also setting electricity tariffs for each category, which will determine exactly how much a disco in a “lucrative” area will have to pay to the new fund, the minister added.
According to the budget announcement, the new program, the latest of four in the past two decades, beginning with the Accelerated Power Development and Reform Program (APDRP) unveiled in 2001, is contingent on the discoms committing to structural reforms and infrastructural creation like the segregation of tributaries and smart meters to address the core issues of billing and recovery and theft inefficiencies that cripple the sector.
“As a deterrent to non-compliance with the agreed loss reduction targets (under the new program), we will introduce a provision that the disbursed grants will be converted into loans if the discoms fail to take the desired action,” said Singh. The new program aims to reduce aggregate technical and commercial (AT&C) losses – an indicator of theft – after the previous Ujwal Discom Assurance Yojana (UDAY) program failed to meet its goal of reducing those losses to 15% by the end of FY19 Has. AT&C losses are now 25%.
The state governments provide Rs% of the funding of Rs 3.1% foreseen under the program over a period of five years. The new proposal stipulates that the 60% grant component would be converted into loans from the books of nightclubs if they fail to meet the objectives.
Discoms’ financial losses rose 83% annually to Rs 61,360 billion in FY19 and have continued to grow since then.
Although details of the new scheme are still being worked out, Singh said, “If loss-making discos do not access the scheme, unless a loss-reducing path is worked out and approval is obtained from the relevant state government,” the minister noted. Payouts are tied to adherence to the loss mitigation path and annual reviews are carried out to assess the performance of the Diskoms.
With regard to the delicensing of the distribution sector, the Union Department of Energy has already discussed the proposal with all states, industries and electricity regulators. “The regulator will set a maximum tariff and Discoms will be free to charge anything below that so there will be competition based on price and quality of service,” said Singh. The company that owns the distribution network must pay wheeling fees from others who use the network. The fixed fee component of the tariff to be paid to the generators within the framework of the existing electricity purchase agreements would be distributed to the discoms proportionally to the connected load of the individual units. The energy fees would have to be paid according to the amount of electricity supplied by each disco, said the minister.
Given that contingent liabilities remained an unsolvable problem and absolute risk to public finances due to high outstanding debt and rising losses from power interruptions, despite a series of financial bailouts, “real reforms” in the electricity sector could not wait any longer, Chairman of the 15th Finance Commission , NK Singh said recently. The unbundling of state electricity suppliers was still an unfinished business, he noted, adding that the issue of “regulatory capture” – state electricity regulators being paralyzed by the political executive – should be tackled as a priority alongside a quick follow-up on the privatization of discos.
Under the liquidity infusion plan announced last year of 1.25 billion Uttar Pradesh (Rs 27.432 billion), Maharashtra (Rs 14.310 billion), Telangana (Rs 12.652 billion), Karnataka (Rs, 7.247 billion) and Andhra Pradesh (Rs 6,835 billion).