An electrician is silhouetted while working at a utility pole in Coonoor, Tamil Nadu. (Photographer: Dhiraj Singh/Bloomberg)

UDAY: State-Run Discoms Report More Losses In Six Months Than Entire Previous Fiscal

State-run distribution companies’ losses in the first six months of the ongoing financial year have surpassed what they reported in the entire 2017-18 fiscal.

Losses jumped 36 percent year-on-year to Rs 15,080 crore in first half of financial year 2018-19, according to a report from Conference of Power & New and Renewable Energy Ministers of States and Union Territories held in February 2019. More importantly, it’s more than Rs 15,049-crore loss incurred in FY18.

That comes despite the government’s Ujwal Discom Assurance Yojana— a scheme aimed at improving the finances and efficiencies of electricity distribution companies. Introduced in 2015, it has so far seen the participation of 27 states.

The increase in losses, according to the report, can be attributed to Telangana, Tamil Nadu, Madhya Pradesh, Assam and Andhra Pradesh, the states where losses more than doubled as compared to same period last year.

The report highlights the following reasons for the poor finances of distribution companies:

Increase In Power Purchase Cost

In the first half of financial year 2018-19, there has been a sudden increase in the power purchase cost to Rs 4.30/Kilowatt hour against Rs 4.12/kWh in the same period last year on account of increase in fuel and freight charges, rise in electricity demand, increase in short-term procurement, among others. The overall scenario forced discoms to procure additional power through short-term routes or spot markets, which was expensive due to various market dynamics.

Increase In Establishment Cost

Establishment cost during the UDAY period has increased from Rs 0.68/kWh in FY16 to Rs 0.72/kWh in FY18 mainly due to the implementation of the seventh pay commission and massive expansion of the distribution network under various government schemes.

Inadequate Tariff Hikes

Under the UDAY scheme, states are required to rationalise consumer tariff. However, despite increase in various cost elements, the same has not translated into corresponding increase in tariff.

Only 17 states have increased tariff for the year 2018-19 compared to 22 states in the previous year. Also, some states have not increased their tariff for FY19 as per the hikes envisaged in the UDAY scheme, resulting in shortage of revenue.

Inadequate And Untimely Payments By State Governments

On account of the increase in electricity supply to rural consumers, discoms’ dependence on direct revenue subsidy by the state government has increased.

Rising Dues From State Governments

At the end of September 2019, outstanding dues payable by the government departments has increased to Rs 37,286 crore compared to Rs 25,262 crore at the end of September 2017 (increase of 48 percent), thus impacting the revenue stream.

Discoms Debt Condition

As on September 2015, total debt of all state-owned discoms was estimated to be Rs 3.95 lakh crore. The governments of 16 states which have signed memorandum of understandings have taken over around Rs 2.09 lakh crore debt of the discoms as per the terms of UDAY agreements out of Rs 2.69-lakh crore debt.