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Rs 3 lakh crore lifeline to Discoms to perform or perish

PB Jayakumar     February 2, 2021

The Union Finance Minister Nirmala Sitaraman has given another opportunity to the ailing power distribution companies (discoms) to stay competitive and survive, with an outlay of Rs 3 lakh crore over the next five years.

This funding support will come with commitment towards structural reforms by the discoms with regard to infrastructure creation such as feeder separation and smart meters and will help strengthen the weakest link in the power value chain and progress on these reforms will be a key monitorable, says Manish Gupta, Senior Director, CRISIL Ratings. "The outcome-based discom reforms through an outlay of Rs 3 lakh crore over the next five years will come at a time when around 53 gigawatt (GW) coal capacities of independent power producers - excluding 22 GW under debt resolution - are facing the impact of the liquidity squeeze at discoms," he says.

The outcome and result-based financial package is a good move and an improvement over the existing UDAY scheme to address the stressed discoms' health, says Guru Inder Mohan Singh, COO, Amplus Solar. "This financial aid is only a short-term measure and reforms such as direct benefit transfer schemes for subsidies along with financial packages is necessary," he says.

"Importantly, the scheme will be tied to financial improvements. The reforms of discoms will be a significant upside for the power sector and will help generate investments not only in distribution but also in the generation and transmission sectors," notes Harminder Singh, Director of Power at GlobalData.

The Ujwal Discom Assurance Yojna (UDAY) was mooted by the government to reduce losses of the distribution companies, mostly under the state governments. It suggested improving efficiencies with modernisation, privatisation, reduction in transmission losses, theft and conversion to new metres. It was launched in November 2015, by absorbing 75 per cent of the then debt of the discoms. However, the losses of discoms stood at Rs 33,894 crore in FY17, Rs 29,452 crore in FY18, and Rs 49,623 crore in FY19. The pandemic and lockdown worsened the financial situation of discoms and the centre had to give a Rs 90,000 crore PFC-REC loan as part of the Atmanirbhar package to reduce losses of the discoms. Even after four years of the scheme, the aggregate technical and commercial (AT&C) losses of discoms are over 21 per cent, much less than the anticipated 15 per cent, and the gap between cost of supply and revenue realised (ACS-ARR gap) was Rs 0.52 per unit at the end of FY19.

Another announcement is to create a framework to give consumers the choice of procuring electricity from any distribution company. From consumer's point of view, giving them power to choose will ensure they are better served. Competition and best service will be key, making consumer the king, forcing distribution companies to better perform or perish. "Breaking the monopoly of power discoms and providing options to consumers should further open up rooftop and open access segments, however clear enabling provisions should be enumerated by the government. These are positive developments focussing on revival of discoms and also opening up the sector to competition and new technologies," says SK Gupta, CFO, Amp Energy India.

"Besides, the proposal to monetise transmission assets will expedite infrastructure creation and even channel in more funds for further investment. This may also open operation and maintenance in these assets to private players," says N Venu, Managing Director and Region Head, South Asia, Hitachi ABB Power Grids India.

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