Two years after the Ujwal Discom Assurance Yojana (UDAY) scheme was launched by the Centre to rescue tottering State electricity distribution utilities (discoms) the sector continues to be in a mess. Twenty-seven States and Union Territories signed up for UDAY which freed the discoms from the burden of debt that they carried and also committed States to assume a share of the losses of the utilities beginning from fiscal 2016-17. Yet, the truth is that discoms continue to be in trouble, unable to pay generating companies for their supplies. Discoms of States such as Tamil Nadu, Madhya Pradesh and Maharashtra have defaulted on their PPA obligations forcing the Centre to consider options such as giving more powers to regulators to penalise them. This is not surprising because UDAY was an effective scheme to address the symptoms of the disease but not the disease itself.
The basic problem is one of a mismatch between the revenues and expenses of the discoms. According to the Central Electricity Authority, the average revenue realised by discoms per unit of electricity distributed by them is ₹3.76 while their cost of supply is ₹5.01 a unit, which is a deficit of ₹1.25 a unit straightaway. The poor realisations can be attributed to two factors. First, the increasing base of rural electricity supply which is typically highly subsidised and non-remunerative, and second, the inability to control aggregate technical and commercial (AT&C) losses. More than 13,000 villages have been electrified in the last three years and the Centre hopes to completely connect all villages with electricity by 2018. While this is a notable achievement from a development perspective, the associated challenge is of how to subsidise the consumption. Similar worries have been set off by the latest scheme, Saubhagya, which promises free connections to village houses. While the supply will be billed, it will be at a subsidised rate. The puzzle for States is one of subsidising the supply.
The biggest failure of electricity reforms in the last decade and more is on the AT&C front. Though it has reduced from the time when reforms began, AT&C losses at around 22 per cent are still double the global average. Pilferage of power and free agricultural supply are the villains here. A recent study by ratings agency Crisil shows that as much as 21,000 MW of private coal-fired generation capacity is under stress for various reasons, including non-payment of dues by discoms. Clearly, State governments have to take the issue of discom health seriously and reform their ways of functioning. They have no choice anyway because under UDAY the share of discom losses that they have to bear will grow from 5 per cent in 2016-17 to 10 per cent this fiscal, and eventually to 50 per cent by 2019-20.