Context

• The Andhra Pradesh (A.P.) power distribution companies (DISCOMs) subscribed to the Late Payment Surcharge (LPS) scheme introduced by the Central government to reduce their liability to generators in a phased manner over the next 12 months.

What are discoms?

• Power distribution companies collect payments from consumers against their energy supplies (purchased from generators) to provide necessary cash flows to the generation and transmission sectors to operate.

What is UDAY scheme?

• Ujjwal DISCOM Assurance Yojana is the financial turnaround and revival package for electricity distribution companies of India initiated by the Government of India with the intent to find a permanent solution to the financial mess that the power distribution is in.

What is The Revamped Distribution Sector Scheme (RDSS)?

• The revamped power distribution sector scheme aims to: Improve operational efficiencies, financial sustainability of discoms and power departments. Provide financial assistance to discoms. Modernise and strengthen distribution infrastructure. Improve reliability and quality of supply to the end consumers.

Low performance of Discoms

1) On the basis of AT&C losses

• A key metric to measure the performance of discoms is AT&C losses.
• The UDAY scheme had envisaged bringing down these losses to 15 per cent by 2019.
• However, as per data on the UDAY dashboard, the AT&C losses currently stand at 21.7 per cent at the all-India level.
• In the case of the low-income north and central-eastern states — Uttar Pradesh, Bihar, Jharkhand and Chhattisgarh — the losses are considerably higher.

2) On the basis of cost and revenue per unit

• On another metric — the gap between discoms costs and revenues — the difference, supposed to have been eliminated by now, stands at Rs 0.49 per unit in the absence of regular and commensurate tariff hikes.
• For the high-income southern states of Tamil Nadu, Andhra Pradesh, and Telangana, this gap between costs and revenues is significantly higher.

What are the factors responsible for inefficiencies?

1) Electrification push without cost restructuring

• The government’s push for ensuring electrification of all have contributed to greater inefficiency.
•  To support higher levels of electrification, cost structures need to be reworked, and the distribution network would need to be augmented — in the absence of all this, losses are bound to rise.

2) Economic fallout of the pandemic

• With demand from industrial and commercial users falling, revenue from this stream, which is used to cross-subsidise other consumers, has declined, exacerbating the stress on discom finances.
• A turnaround in the economy will provide some relief, but will not form the basis of a sustained improvement in finances.

3) Lack of consumer data and metering

•  Even six years after UDAY was launched, various levels in the distribution chain — the feeder, the distribution transformer (DT) and the consumer — have not been fully metered.
• As a result, it is difficult to ascertain the level in the chain where losses are occurring.
• Other than discoms in metros like Delhi and Mumbai, there is also limited data on which consumer is attached to which DT.
• This lack of data makes it difficult to isolate and identify loss-making areas and take corrective action.

4) No tariff hike

• The continuing absence of political consensus at the state level to raise tariffs or to bring down AT&C losses signal a lack of resolve to tackle the issues plaguing the sector.

Suggestions to improve the situation

• Single discom: One of the solution centres around a national power distribution company.
• Financial adjustment: Another option is to deduct discom dues, owed to both public and private power generating companies, from state balances with the RBI forcing states to take the necessary steps to fix discom finances.
• National Open Access Registry (NOAR): NOAR is a centralized online platform through which the short-term open access to the inter-state transmission system is being managed in India.
• Promote privatization: Since in an earlier policy statement the government had mentioned that privatization of discoms is to be promoted, it would make sense to consider this transitional support as a catalyst.
• Provide transitional financial support: An alternate approach that could be considered by the Centre (in lieu of such assistance schemes) is providing only transitional financial support to all discoms, which are privatized under the private-public partnership mode.

Conclusion

• Continuously subsidising discoms for their AT&C losses (operational inefficiencies), and for not supplying power at commensurate tariffs to low-income households and agricultural customers (for political considerations) will become fiscally untenable.

Mains question

Q.There is growing demand for one nation one grid in this context Discuss the problems faced by various discoms. Suggest some robust solutions to address these problems sustainably.

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