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DISCOMS : REFORMS–BASED AND RESULTS-LINKED SCHEME

SYLLABUS: GS MAINS PAPER 3

State-owned distribution utilities (discoms) continue to be in fragile financial health. In the budget 2021-2022, the union government had announced the launch of a “reforms-based and results-linked” scheme for the distribution sector with the objective of improving the financial health and operational efficiency of discoms.

KEY POINTS

1. DISCOMs mean Distribution Companies (in India).

2. Under the scheme, Aggregate transmission and commercial (AT&C) losses are aim to be brought down to 12-15 per cent by 2025-2026 from 21-22 per cent currently.

Operational efficiencies of discoms are to be improved through upgradation of infrastructure and smart metering , including the segregation of agriculture feeders and strengthening the system.

3. The scheme has two parts:-

Part A: an outlay of Rs 3.02 lakh crore, pertains to the upgradation of the distribution infrastructure and metering related works.

Part B: with an outlay of Rs 1,430 crore, is for training and capacity building besides other enabling and support activities.

4. Discoms and their state governments will have to sign a tripartite agreement with the central government in order to avail benefits under the scheme.

5. The action plan to be submitted by the discoms will be divided into two parts-

First part will contain analysis of the reasons/root cause for reducing losses, the gap between costs and revenues, and the time required for implementing the changes.

Second part of the action plan will comprise listing out the work plan for loss reduction and further strengthening of the distribution systems.

6. An inter-ministerial monitoring committee will finalise the “Results Evaluation Framework” based on the agreed-upon action plan, incorporating the result parameters.

●For this, the base year has been set at 2019-2020.

●The path to be taken by the parameters that are to be monitored- AT&C losses, the ACS-ARR (average cost and revenue) gap, infrastructure upgradation, consumer service, hours of supply and corporate governance.

WHAT ARE THE BENEFITS?

1. The use of solar power projects to supply electricity to these consumers through the agriculture feeder route is likely to result in savings.

This is because of a combination of high tariff competitiveness offered by solar power, lower technical losses due to proximity to load centres, and the ability to meet during the day when sunlight is available.

2. The state/discom will be able to access funds for addressing infrastructure constrains in the distribution system. Priority will be given to work necessary for AT&C loss reduction.

CONCERNS/CHALLENGES

1. A continuing area of concern affecting discom finances is the significant delay in the process of tariff determination in many states.

Only 19 out of 28 states have issued tariff orders for 2021-2022, indicating sluggish progress.

2. There is upward pressure on the cost of power supply for distribution utilities, considering the dominant share (around 70%) of coal in the fuel mix for energy generation, the strengthening of imported coal prices and the possibility of domestic coal price revisions by Coal India.

3. A loss-making discom will not be eligible unless it draws up plans to reduce its losses, approved by the state government and filed with the central government.

4. Their precarious financial position is due to high level of aggregate technical and commercial (AT&C) losses, the levy of inadequate tariffs when compared to the cost of power supply and insufficient subsidy support from state governments.

●Their over- all debt burden, despite the implementation of the UDAY scheme, is estimated to increase to around Rs 6 lakh crore in the ongoing financial year.

● Their annual cash losses are estimated to be about Rs 45,000-50-000 crore (excluding UDAY grants and regulatory income).

WAY FORWARD

1. Artificial Intelligence would be leveraged to prepare system generated energy accounting reports. This will enable DISCOMs to take informed decisions on loss reduction, demand forecasting, Renewable Energy integration, Time of Day (ToD) tariff and for other predictive analysis.

2. Strong political will and support from state governments are needed to powering the discoms.

CONCLUSION

While the focus on improving the operational efficiency, and ensuring the financial sustainability of discoms is indeed welcome, timely implementation of the reforms is critical to achieving the milestones.

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