Can the power sector ever be reformed?

By: Sutanu Guru

As reported across TV channels, digital platforms and newspapers, the Ministry of Power has finally cracked the whip on 27 erring power distribution companies belonging to 13 states.

As reported across TV channels, digital platforms and newspapers, the Ministry of Power has finally cracked the whip on 27 erring power distribution companies belonging to 13 states. With effect from late evening August 18, they have been barred by the state owned Power System Operation Corporation that manages the national power grid from spot transactions (buying and selling) of electricity in exchanges. The reason is simple: the discoms from these 13 states have current outstanding dues of Rs 5,100 crores to power generating companies. The definition of “current” is quite interesting. Current dues in this instance means bills raised by power generating companies that have not been paid for 7 months. As data will reveal subsequently, “past” unpaid dues, as compared to the “current” dues run literally into lakhs of crores. 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. Though the amounts involved for each state when it comes to current dues is not huge, power cuts in these states will become inevitable unless the dues are paid off immediately.

As the accompanying chart shows, except for the state Telengana, the  amount payable is not so large as to create massive problems. But not paying “current” dues for as long as 7 months is without doubt a worrying trend; exposing both the failure of distribution companies to generate more revenue and the persistence of the crisis. Take Jammu & Kashmir, for instance. The unpaid current dues of the Union Territory of Rs 434.8 crores may not look large. But when you look at the population of the state, it’s a very significant amount. Anecdotal data and news reports suggest how deep the rot is. Distribution companies have found in many parts of the union territory that consumers throw out the smart metres installed by the companies brazenly saying they have not, and will not pay for power. Brazen theft of electricity is still an area of serious concern all over India. While the so called transmission & distribution (call it theft) have down from levels as high as 30% when this century began to about 20%  now, the lost revenue amounts to tens of thousands of crores every year.  To add to the woes of the power sector, many state governments have resorted to indiscriminate supply of “free” electricity to citizens. While analysts think targeted electricity subsidies to poor citizens makes sense; but giving free electricity to even people whose annual income is in excess of Rs 25 lakh perversely distorts the entire system and creates a culture of entitlement that eventually leads to bankruptcy.

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. As the second chart above shows, losses incurred by state discoms are an annual nightmare. 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 looses till 2017-18. But they have started ballooning again since then and rough estimates indicate that state discoms reported total losses of more than Rs 80,000 crores in 2021-22. They owe more than Rs 1 lakh crore to power generation companies.

Clearly, 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. After years of carrots, the stick seems to have emerged as an option now.