Since 2001, the accumulated loss of electricity distribution companies has been comparable to 2 per cent of India’s GDP. Clearly, repeated bailouts, investment programmes and reform efforts have not affected losses. In March 2015, accumulated losses were estimated at Rs. 2.5 lakh crore.
The 2011 report under the chairmanship of VK Shunglu is perhaps the only effort in recent times to assess the distribution companies’ (discoms’) financial predicament. Among other contributions, the report presented a comprehensive review of accounts which, significantly, highlighted the poor quality of financial data.
Since 2003, electricity regulatory commissions have been entrusted with the task of assessing past performance based on audited information, to determine prudent costs to be paid by consumers.
Even though tariff determination has become an annual exercise, assessment of past performance and reconciliation with audited accounts is at best intermittent.
In most cases, this is because audited actuals are unavailable. Some losses could be due to State Government inaction, leading to non-receipt of promised subsidy payments and delays in implementation of the transfer scheme.
Losses could also be due to accumulating expenditures considered avoidable by the regulator and thus disallowed for recovery from consumer tariffs.
These costs arise out of inefficient practices of the discoms, such as failure to meet regulatory norms, poor collection efficiency and continued purchase of high cost power.
Such costs could be financed by bailouts and future tariff increases. This shows that regulatory checks are ineffective in holding the discoms accountable. It also shows that such costs, if not borne by the consumer, will ultimately be borne by the taxpayer.
Further, statistics on the share of interest payments, short-term liabilities in total losses and the quantum of outstanding payments to power sector agencies could point to myopic strategies to finance current operations.
However, to get a grip on the situation, a disaggregated accounting of the losses is called for.
Inadequate informationThere have been 3 schemes since 2001 to tackle mounting liabilities of discoms. They all seem shrouded in mystery. The 2001 scheme and the 2012 scheme to finance debt via State Government backed bonds were full of conditions meant to check unsustainable practices.
The absence of publicly available reports on implementation status, compliance, penalties, funds allocated and liabilities cleared makes any assessment impossible.
While unbundling, post Electricity Act 2003, State governments were to take over the then accumulated liabilities of the erstwhile electricity boards to provide the newly formed discoms with a fresh start.
The details of these transfer schemes, its design, implementation status and the present treatment of such liabilities in various States remains unclear to date.
Given the lack of information, it is possible that a major portion of the present losses were also part of past schemes. To address mounting losses, many regulators have allowed for gradual recovery of past losses via tariff increase by creating regulatory assets.
With the proposed amendment of the Electricity Act, proliferation of supply licensees, open access consumers and increased uptake of renewables is imminent.
Losing out on high paying consumers in the immediate future will further affect the financial position of discoms. Even if the Centre is not keen to design another bailout, it can lend more clarity to the predicament of discoms – an issue which will inevitably have to be addressed by State governments.
Regulatory Commissions should publish annual assessment reports of the magnitude and break up of accumulated losses based on audited actuals. The Ministry of Power should publish a review of previous financial assistance programmes.
As lending agencies also have a major role to play in the crisis, there is a need for a central publicly accessible repository which will house information on loans and status of repayment.
If issues responsible for loss build-up are not identified and addressed, we will have to keep apportioning as much as 2 per cent of the country’s GDP for power sector bailouts.
The writer is Research Associate, Prayas (Energy Group)