Sibling States grappling with ‘power’ problems

Rather than release White Papers, both Andhra Pradesh and Telangana must focus on policy stability and exhibit the political will to implement reforms

“Our government faces significant challenges in the power sector in terms of addressing the legacy losses of ₹1,29,503 crore created by the previous government; bringing back investors’ confidence; and rebuilding ‘Brand Andhra Pradesh’,” Chief Minister of Andhra Pradesh, Chandrababu Naidu, said when releasing the White Paper on AP power sector, recently.

Power is not a challenge for Naidu alone but even in the sibling State Telangana, where Chief Minister Revanth Reddy is facing his own set of legacy issues in the sector — irregularities in power purchase agreements, controversy over privatisation of the sector, among others. The new dispensation in Telangana has proposed the formulation of a new energy policy.

The developments in these two States also bring out the fact how politics governs the power sector in the country. And because of uncertainties and shifting of goal posts, the one who suffers the most is the end-consumer.

As M Venugopal Rao, convener of the Centre for Power Studies, puts it, “A harmonious balance to the extent practicable between demand and power supply should be there when going for policy stability.”

Rao, who has closely tracked the sector in both the States, holds that “the policies pursued by both Chandrababu government and the previous Jagan Mohan Reddy government (in Andhra Pradesh) are similar with just a degree of difference.”

Instead of coming out with papers, a better approach would have been to analyse the decisions which have led to the current power sector situation in the State, he said.

Rao has a point here. Any reform in the power sector to succeed needs at least a decade of policy stability, whereas what is frequently seen is whenever a new dispensation comes, instead of doing course corrections, the work is brought to a standstill.

Talking about way forward in the White Paper, Naidu says: “Our primary objective is to provide quality and reliable power at affordable rates to all consumers in the State without any power cuts. Currently, the energy sector is rapidly transforming with technological advancements and we intend to take advantage of this transformation to address the challenges being faced by AP Power Utilities.”

Naidu goes on to say, “We have introduced Power Sector Reforms 1.0, Power Sector Reforms 2.0 and now we need Power Sector Reforms 3.0 to transform the sector for empowering the society. Hence, we are seeking inputs and support from all stakeholders to make Andhra Pradesh an energy hub...”

Well, one cannot take away from Naidu the reforms he had introduced during his previous stint. What was desired was consistency.

Before Naidu, Revanth Reddy’s Telangana State Power Sector White Paper was released in December 2023. The paper said, “the accumulated losses of Discoms as on March 31, 2023, stood at ₹62,461 crore. Discoms have a debt of ₹81,516 crore as on October 31, 2023. Of this, ₹30,406 crore has been borrowed as working capital primarily to pay power charges to the generators. Despite this, an amount of ₹28,673 crore of generation and transmission dues remain to be paid by the Discoms.”

Payment of dues is a challenge both the States are facing. In fact, the Telangana White Paper goes on to say “...merely to keep the power supply going, Discoms are resorting to borrowings on a regular basis which have reached unsustainable proportions. There is very limited scope to continue to fund the purchase of power through these means. Discoms are now finding themselves in debt trap due to failure of government in paying its dues and commitments to the sector.”

Clearly both States are aware of the challenge they face. A lot needs to be done, Rao said.

Challenges facing Discoms

According to Vikram V, Vice-President & Co-Group Head, Corporate Rating, ICRA, “In terms of reforms, the Discoms face typically three challenges: First , operating inefficiencies which lead to commercial losses. Second, tariff. If you don’t pass on the variation in power purchase cost or the other cost to the customers in a timely manner, there is a build-up of large losses on the books. And third, collection of the subsidy and collection of dues from government departments.”

A major component to ensure revival of the power sector is tariff alignment. Touching tariff can be a very politically sensitive issue, therefore, all political parties across boundaries tread cautiously.

According to Vikram, if there is a requirement of increasing tariff then it can be done in a gradual manner. “You don’t have to do it in one go. Obviously, if you do a big hike in a single stroke that will have an impact on the consumer sentiment and their own financial position. Typically the way to do it is in a gradual fashion like what we see in Karnataka or say in Gujarat,” he added.

Besides tariff alignment, the other aspect is how you optimise the cost? “Need to put in place a process to optimise the power purchase mix. But this will not happen in a day. It will take maybe three or four years to change that. So if it is a combination of measures — reduce your cost, improve your realisation, ensure that subsidy payments are made timely,” he said.

Says Association of Power Producers DG, Ashok Kumar Khurana, “Everyone knows what needs to be done — bill the power that is supplied, collect the bill and align the tariffs to reflect true cost. To ensure the above, what is required is sustained political will.”

Instead of coming out with papers it would be better if the current dispensations offered the alternatives that are available and how they are going to resolve the current situation. In the power sector, it is maintaining consistency in the reforms process that matters the most.