BS Number wise: Indian power distribution companies' Ides of March

Before Ides of March became associated with Julius Caesar’s assassination, Romans regarded the date as a deadline to settle debt. Most countries now end their financial years in March and banks square off their balance sheets then. An analysis shows that March is when India’s 67 power distribution companies, or discoms, (mostly state-owned) rush to clear most of their debt.

This March, discoms cleared Rs 34,150 crore worth of debt owed to power-generating companies. The average debt cleared in the previous 11 months of 2020-21 was Rs 12,821 crore.

A Business Standard analysis shows that the debt settled in March is almost two to four times higher than the average debt settled every month in the rest of the financial year. Discoms paid Rs 17,627 crore as debt in March 2019-20, whereas they averaged Rs 9,981 crore during the rest of the financial year.

 

Discoms' debt pile-up is worrying. Despite myriad government schemes, a financial turnaround is nowhere in sight.

The government launched in 2015 a financial revival package called Ujwal DISCOM Assurance Yojana (UDAY). A year-and-a-half into its operation, by 2016-17, discoms owed Rs 29,430 crore. At the end of April 2021, they owed Rs 69,080 crore. For the month of April alone, power generating companies had raised bills worth Rs 15,823 crore, while discoms paid only Rs 2,813 crore. 

Discoms often tend to raise disputes on bills raised by power generating companies. The disputed amount has also been on the rise. Until January 2020, bills worth Rs 11,439 crore were in dispute. The disputed amount has now increased to Rs 24,617 crore. 
 

Aggregate technical and commercial losses — the difference between energy units put in the system and units for which payment is collected — hasn’t come down either. UDAY aimed to bring AT&C losses down to 15 per cent by 2019-2020, but discoms' AT&C losses average 21.73 per cent.

Reforms in the sector have been slow. Smart metering was expected to reduce theft and correct market pricing, but only 8 per cent of consumers have got smart meters fitted. Add to this the burden of subsidies to agriculture and cross-subsidies — businesses are charged too much and households too little — and the economics of discoms becomes wayward.

Privatising power distribution could be a solution, but it is a tough task. Last year, the government put off plans to privatise Uttar Pradesh’s Purvanchal Vidyut Vitran Nigam Limited after protests by employees, even though PVVNL had AT&C losses of 38 per cent, the highest among the state’s five discoms.

On June 28, Finance Minister Nirmala Sitharaman announced Rs 3.03 trillion worth of financial assistance to discoms.

But, can unconditional liquidity help in revival of India's power sector?