Friday, 17 May, 2024
By: Yash Gupte
According to data released by the Power Finance Corporation, accumulated losses of state electricity utilities has increased from Rs 47,526 cr to Rs 50,281 cr. Image Source: IANS
According to a NITI Aayog report, the combined losses of discoms in the five most indebted states - Rajasthan, West Bengal, Tamil Nadu, Delhi, Kerala and Maharashtra - constituted 24.7 percent of the total losses in 2021-22
Concerned over mounting losses, the Ministry of Power has written a sternly-worded letter to all State Electricity Regulatory Commissions (SERCs), to submit a report on the status of the 'regulatory assets' of distribution companies (discoms) along with its liquidation plan within a month. The ministry in its letter has raised questions on the viability and their increasing loss-and-debt spiral.
What is a regulatory asset?
A regulatory asset is created when state regulators defer costs incurred by them to be recovered through future hikes in electricity tariffs. However, since hiking electricity rates is a politically sensitive issue, the SERCs, instead, keep deferring these costs. These deferred costs are called regulatory assets. Due to non-reflective tariffs, several state-run distribution companies were unable to clear dues of power generation companies. This has had a cascading effect on the entire power sector as power generation companies themselves delay payment to their suppliers of coal, gas and other raw material. At present, the outstanding payables stand at around Rs 1 lakh crore.
Current dues run literally into lacks of crores
As the below chart shows, losses incurred by state discoms are an annual nightmare. According to data released by the Power Finance Corporation, accumulated losses of state electricity utilities has increased from Rs 47,526 cr to Rs 50,281 cr.
There was some improvement in the situation when the Uday Scheme was launched in 2015 to help state discoms become more financially viable in the long run. There was a dramatic fall in losses till 2017-18. However, since then they have started ballooning again. The losses of discoms surpassed the pre-UDAY level of 0.4 percent of GDP in 2018-19. Their long-term debt began rising in 2017-18, surpassed the pre-UDAY level by 2018-19, and rose further in 2019-20.
As the accompanying chart shows, state electricity boards stare at an abyss of bankruptcy and they can be rescued only through bailouts that involve money paid by Indian citizens as tax.
According to a NITI Aayog report, the combined losses of discoms in the five most indebted states - Rajasthan, West Bengal, Tamil Nadu, Delhi, Kerala and Maharashtra - constituted 24.7 percent of the total losses in 2021-22. Rajasthan tops the list of states with highest regulatory assets of Rs 45,920 crore followed by West Bengal (Rs 19,580 crore), Tamil Nadu (Rs 10,336 crore), Delhi (Rs 8,954 crore), Kerala (Rs 5,472 crore) and Maharashtra (Rs 4,580 crore).
Why are discoms in so much loss?
One of the primary reasons as mentioned earlier, are discoms not raising tariff in line with increased cost. This is because most of them are owned by State governments and in order to make electricity affordable to citizens, democratically elected governments succumb under populist pressure so as to not go for a hike in prices.
Then, the discoms face acute cash flow problem. Due to the perennial cash collection shortfall, often due to payment delays from consumers, Discoms are unable to make timely payments for their energy purchases from the generators. This overhang limits their ability to pay on time, forcing them to run up operational debt to electricity suppliers and transmission firms. The pandemic has also completely shattered incoming cash flows to utilities. The lockdown disproportionately impacted revenues from commercial and industrial segments.
Adding to the problem are the power subsidies that are now being offered by almost 27 states and Union Territories. According to a report by CEEW, direct tariff subsidies from state governments in India amounted to INR 110,391 crore (USD 15 billion) in the year 2020-21.
More problems to arise in future
As the accompanying chart will indicate, the crisis in the power sector could deepen over time and reach unmanageable proportions. India is no longer a poor, developing and low income country. Thanks to sustained economic growth in the last two decades, the Indian consumer now has the income and the purchasing power to demand and buy more goods and services. Electricity happens to be one of them. The per capita consumption of electricity was 884 KwH in 2012-13 when the northern grid collapsed. By 2019-20, the pre pandemic year, per capita consumption had gone up to 1181 KwH.
As the demand for power is rising rapidly, the big question is: Can perennially bankrupt utilities keep pace anymore with rising demand? The early promise showed by the present regime in reforming the power sector appears to have dissipated. Perhaps cracking the whip now is yet another effort to incentivise reform.
