Why Tamil Nadu's massive power sector debt is the highest in India?

According to the state government, a major reason for this is the AIADMK government's reluctance to raise power tariffs for the last 7 years, apart from high costs and lower recoveries

Contributing to around 30 per cent of the total power sector debt in India of Rs 4.5 trillion, 20 per cent of the country’s discoms' outstanding dues to power generation companies in June 2021 and 28 per cent of Tamil Nadu's overall debt, the Tamil Nadu Generation and Distribution Corporation (Tangedco) is turning out to be a serious concern for not just the power sector in India, but for the state’s efforts in reducing its rising debt burden too.

Within a span of one year, the guarantee provided by the state government for loans to the power sector jumped 90 per cent from Rs 43,581 crore in 2019-20 to Rs 82,916 crore, showing the worsening finances of the state’s power companies. Presenting a white paper on the state finances on Monday, Finance Minister Palanivel Thiagarajan pointed out that the power sector and transport sector together contribute around Rs 1.99 trillion out of the state’s total debt of Rs 4.86 trillion. Out of this, the two power PSUs - Tangedco and Tamil Nadu Transmission Corporation (TanTransco)  - contributed to around Rs 1.34 trillion and Rs 25,568 crore, respectively, in 2020-21.

Based on data available with the ministry of power, out of the total dues of Rs 90,699 crore owed by discoms (distribution companies) to power generation companies in the month of June, Rs 18.487 crore or the largest share came from Tamil Nadu, followed by Maharashtra (Rs 16,771 crore) and Rajasthan (Rs 11,045 crore).

These figures have raised eyebrows on why the state is becoming the worst performer among all the power utilities in the country. According to the state government, a major reason for this is the AIADMK government's reluctance to raise power tariffs for the last 7 years, adding to high costs and lower recoveries. According to industry experts, though there were several reforms including the UDAY scheme to rescue the ailing power sector, most of them did not succeed as states failed to meet their stipulated targets.

What is even more alarming is the gap between the average cost of supply (ACS) of electricity and average rate of realisation (ARR), which is the highest in Tamil Nadu among all the states at Rs 2.36 per unit. This is in stark c0ontrast to Rs 2.21 per unit in Andhra Pradesh and Rs 1.57 a unit in Madhya Pradesh, the other two names in the top three states based on the latest data available with the Power Finance Corporation (PFC). The average cost of supply in Tamil Nadu comes to around Rs 9.06 a unit, as compared to an average rate of realisation of Rs 6.70 a unit.

The company’s employee, pension and interest costs increased from Rs 7,352 crore in 2011-12 to Rs 20,261 crore in 2020-21, a spike of 175 per cent. Similarly, fuel and power purchase costs too, saw an increase of 108 per cent from Rs 32,023 crore in 2011-12 to Rs 66,638 crore in 2020-21.

Other major reasons behind the rising debt include zero recovery from the agricultural sector that contributes to 18 per cent of the total supply, higher under-recovery rate on domestic and agricultural supply at Rs 5.74 a unit and Rs 3.32 a unit, respectively. The total loss on domestic supply amounted to Rs 18,735 crore in 2020-21. A larger shift of industrial consumers towards captive generation and open access too, added to Tangedco’s woes as its share in the industrial segment dipped from 60 per cent in 2011-12 to 31 per cent in 2020-21.

On June 30 this year, the Union Cabinet had cleared a new Rs 3.03 trillion reform scheme for the revival of discoms. Experts indicate that this may well be a turning point for states like Tamil Nadu, if they meet the targets set by the Centre.

"The new scheme has an important focus on performance – reducing AT&C (aggregate technical and commercial) losses and upgrading the distribution infrastructure. In addition, widespread use of smart meters and feeder separation is also being emphasized. This is a welcome scheme though we would be cautious in our optimism as many good concepts earlier have not borne results,” said Abhishek Nath, sector head (Energy &Power), Center for Study of Science, Technology and Policy (CSTEP).