Issues with DISCOMS

Syllabus: General Studies Paper 3

Context:

The increasing push towards solar energy, shifting of hitherto cross-subsidising private entities to renewable energy has compounded the perilous position of utilities making the need for reforms more urgent.

Background:

• Distribution Companies (DisComs) are the utilities that typically buy power from generators and retail these to consumers.
• For all of India’s global leadership for the growth of renewable energy, or ambitions of smart energy, the buck stops with the DisComs.
• The days of scarcity of power are over.
• The physical supply situation has mostly improved.
• But the financial picture has not brightened much.

Analysing the data on liabilities of the DisComs

•  ₹90,000 crore (later upgraded to  ₹1,25,000 crore) was earmarked for DisComs in ₹20-lakh crore package announced in the wake of Covid-19’s economic shock.
• The Power Finance Corporation (PFC)’s Report on Utility Workings for 2018-19 showed dues to generators were ₹2,27,000crore, and this is well before COVID-19.
• It also showed similar Other Current Liabilities.
• DisComs have delayed their payments upstream (not just to generators but others as well) — in essence, treating payables like an informal loan.

Impact of Covid pandemic

• COVID-19 has completely shattered incoming cash flows to utilities.
•  The revenue implications were far worse since the lockdown disproportionately impacted revenues from so-termed paying customers, commercial and industrial segments.
• Reduced demand for electricity did not save as much because a large fraction of DisCom cost structures are locked in through Power Purchase Agreements (PPAs) that obligate capital cost payments, leaving only fuel savings with lower offtake.

Way forward

We will probably need a much larger liquidity infusion than has been announced thus far, but it also must go hand-in-hand with credible plans to pay down growing debt. We need a complete overhaul of the regulation of electricity companies and their deliverables. We need to apply common sense metrics of lifeline electricity supply instead of the political dole out of free electricity even for those who may not deserve such support For the rest, regulators must allow cost-covering tariffs.

The Indian Express Link:

https://indianexpress.com/article/opinion/columns/indias-power-discoms-are-at-a-critical-point/

Question- Healthy financial situation of Discoms is a necessity to ensure a resilient energy sector. Explain.