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Crisis in Power Discoms

Crisis in Power Discoms

What in news about Crisis in Power Discoms?

  • Last week’s stand-off between India’s largest power producer, NTPC, and the discoms of Andhra Pradesh, Telangana and Karnataka is a revealing the crisis in power discoms.
  • Meanwhile, Stuck with unpaid dues of over Rs. 5,838 crore, of which more than Rs. 4,100 crore were due for more than two months, NTPC threatened to “regulate” supply — effectively, reduce by over 3,400 MW the quantum of power it supplies to these three discoms — from midnight of February 5.
  • Moreover, Within a day, threat was kept in abeyance, with the three discoms promising to pay “as soon as possible”, although no clear date was given.

Problems of Crisis in Power Discoms in India :

  • As of November 2018, the money owed by discoms to power producers was over Rs. 41,000 crore. Pending payments are growing at 29% per year.
  • Moreover, Currently, the accumulated losses of discoms are in excess of Rs. 17,000 crore. But this is after two years of the government’s Ujwal DISCOM Assurance Yojana (UDAY), instituted after the cumulative losses of discoms crossed Rs. 51,000 crore in 2015-16.
  • Under the scheme, State governments took over the liability for half the accumulated losses, allowing the discoms to start with a near fresh slate.
  • Meanwhile, In return, discoms were expected to cut losses resulting from theft, non-metering and leakages to 15% of the total by March 31, 2019.
  • But, While gradually increasing tariffs to cover the rest. With just a little more than a month left for that deadline, the loss figure is still over 20% — which means a fifth of the power produced doesn’t earn returns — while tariff hikes and axing of subsidies hasn’t happened.
  • Aggregate technical and commercial (AT&C) losses have come down from 21 percent to 20 percent. But many of the losses were disguised as supplies to agriculture.
  • Hence, losses were converted into subsidies, and it is probably such window-dressings that have allowed UDAY to claim that AT&C losses were under 20 percent.
  • State governments are using discoms as handy vehicles to push all kinds of populist agendas without actually having to spend their budget monies on it, the discoms have virtually reached the point of no return.

A Workable Solutions to Crisis in Power Discoms :

  • Privatization can be a possible solution to overcome the sector’s commercial challenges. Operational autonomy is one of the biggest potential advantages of privatization.
  • Moreover, Profit motive also creates a more efficient value chain, and private companies, unlike governments, do not assess investments in five-year windows.
  • Meanwhile, The private sector’s ability to strategize and plan for the long term is essential in an area like power distribution.
  • In 2018, a high-level committee headed by the Cabinet Secretary suggested that public financial institutions like the Power Finance Corporation discount discom receivables and pay power producers.
  • However, these and wanted the government to create a three-way arrangement with the Reserve Bank of India, such that flows to State government treasuries would be diverted to pay the institutions in case of default.
  • Another committee has been formed, which is of the view that discoms should go into a prepaid mode with power producers.
  • Much time was spent on fiscal restructuring. Equal, if not more, time should have been spent on understanding how AT&C losses were reduced in states like Gujarat, the ACS-ACR gap was reduced and it could be adopted by other states.
  • Decentralised Distributed Generation can be provided for remote areas. Further, after these areas become grid-connected, the private operator can continue distribution services to consumers through the provision of power at specific intervention points and directly collect revenue.
  • The private operator can essentially act as the utility’s mini-grid operator or franchisee, with local presence improving revenue collection as well as consumer services in remote areas.

Way Ahead

  • Separate feeder lines, auditing, strong action against defaulters and pricing are some of the issues that will need to be addressed.
  • It will require time and effort, State officials will be required to understand the success stories, they will need to make out their own plans for states.

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