What is way forward for power discoms? Experts discuss

NK Jain, Vice Chairman of JSW Energy told CNBC-TV18, the poor financial health of state electricity boards (SEB) is the most critical issue facing the power sector. According to him, tariff hikes are imperative for improving the condition of distribution companies or discoms. He also added that domestic coal supply is inadequate for meeting the growing demand for power. Besides, there is also the need to look at cutting down transmission and distribution losses, he opined.

"The distribution companies cannot continuously go on making losses. In that case, they have no choice but to increase the tariff. But more than the tariff increase, they must also work for the losses, reduction in transmission and also in the distribution which is very important and critical," he explained.

Former power secretary, Anil Razdan on the other hand said coal price pooling is expected to come through in the next six months. He is also hopeful of seeing the power sector enjoy the benefits of section 80 IA even after the Budget.

Here is the edited transcript of the interview on CNBC-TV18.

Q: If you have been able to speak with people who attended the minister’s conference yesterday, what was the sense you got from the update? Has progress been made in some quarters and where are you hoping for more progress with respect to the various issues, fuel supply, health of the discoms, the grid improvement, in all those areas where do you see maximum improvement?

Jain: Basically, as you are also saying, this sector is facing the biggest challenge of distribution company’s health because it is very interesting that on one side, the power generating companies are getting whacked down and on the other side there is a shortage of power where load shedding is taking place. It is primarily because of the bad health of the distribution companies.

This is the first meeting of the new power minister and it is too early to say what would be the impact. But, I am sure his language was very positive. Therefore, we expect lot many things to come from him in the next two or three meetings.

Q: We have seen a couple of tariff hikes from almost all the power discom companies. I guess barring West Bengal, almost all of them has raised power tariffs. Are you noticing any improvement at all in their ability to purchase power? Or is it still a long way off?

Jain: I would say it has definitely improved a little bit. Basically, if they are recovering the cost at which they are buying power and matching it with the cost it is sold in the market, they have a reasonable margin. I think the whole process will then change completely. Basically, the distribution companies cannot continuously go on making losses.

In that case, they have no choice but to increase the tariff. But more than the tariff increase, they must also work for the losses, reduction in transmission and also in the distribution which is very important and critical.