Shishir Asthana Moneycontrol Research
The very fact that it took more than 70 years post-independence for electricity to reach every village speaks volumes about the mess the sector has been in. Forget villages, even metro cities, and most state capitals still have to face load shedding. The entire problem in the power sector can be summed up in three words – vote bank politics.
Politicians of all stripes have refrained from increasing tariff for fear of upsetting their vote banks. Besides this, blatant theft of power, at times under the patronage of political parties, is at the root cause of the problems in the power sector.
Many schemes launched by various governments failed to achieve their desired goal because none of them dared to go anywhere close to the root cause. Ultimately it was the taxpayer who had to foot the bill of the huge bailouts.
This, however, changed in November 2015 when the Ujwal Discom Assurance Yojana (UDAY) scheme for reviving the discoms was launched in November 2015. At the time of the launch, the combined annual (FY16) losses of these entities were a staggering Rs 52,000 crore. Apart from Gujarat, almost every state electricity board in the country was making losses.
Reports now say that electricity distribution companies (discoms) in four states —Maharashtra, Rajasthan, Haryana and Andhra Pradesh — are now profitable. These four states now have a combined profit of Rs 1,565.5 crore in FY18 compared with an aggregate loss of Rs 10,203 crore in FY17 by these states.
One of the biggest reason that these SEBs have been able to show profits is that the debt has been taken away from the books of these companies. As per the UDAY scheme, state governments were expected to take the debt off the books of the discoms and merge it with its own budget.
But credit has to be given where it is due. All the states that have turned profitable have been able to do so mainly because of two reasons. One is lower Aggregate Technical & Commercial losses (AT&C), which has been possible on account of a progressive increase in tariffs and improved billing and collection efficiency – by installing tamper-proof meters. In fact, apart from Rajasthan, the other three states have been surpassed their targets for AT&C reduction.
The second main reason is on account of coal rationalization scheme announced by the government recently.
This scheme gave greater control to discoms in terms of purchasing low-cost power. Thermal power plants have been allowed to transfer existing coal linkages to generation units nearer to mines as well as shutting down old inefficient power plants. This removed a big burden on SEBs who were forced to buy power from plants despite their high cost.
Discoms can now buy power from the cheapest source available. Coal linkages alone were able to bring down the cost to the tune of Rs 3,360 crore. Gujarat retired 600 MW of state-owned units while Maharashtra closed down 410 MW of power generating capacity.
A report by Deutsche Bank on UDAY’s performance says discoms' losses have reduced by a whopping 70 percent to Rs 17,350 crore in two years while AT&C losses have reduced to 19 percent - a 500 basis points decline during the same period. More importantly, the gap cost of purchasing power and tariff rate has reduced to Rs 0.24 per kWh – a drop of 57 percent.
Going forward, the government’s effort of improving efficiency to replace 25 crore conventional meters with smart meters over the next 2-3 years can bring down losses further.
The four states are an inspiration for other states to improve their power situation. The ball is clearly in the court of these loss-making state governments who should realize that quality of electricity is more important than the cheap power which is barely available. But will they do it in an election year is a Rs 17,350 crore question, equivalent to the current losses of SEBs.
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