The Union power ministry, which expects capacity addition of 60,000 Mw by the end of the current Plan (which ends in March 2012), has painted a bleak picture of the power distribution sector.
An internal presentation admits the viability of distribution companies is at stake. Cumulative losses up to 2008 of the distribution companies (discoms) were Rs 75,000 crore and this was expected to grow to Rs 1,15,000 crore in 2014-15, based on current rates and without new subsidy. The level of cross-subsidy across different consumer categories was also unsustainable. The net worth of 22 out of 40 utilities was negative.
A ministry official, who did not want to be identified, told Business Standard, "The power secretary made a detailed presentation on the present state of distribution reforms to the Forum of Regulators (FoR) at its recent meeting. The Shunglu committee is currently considering the issues at stake around the financial health of the distribution companies and has underscored in its preliminary report the urgent need for corrective action to arrest the downturn and (also) avoid disastrous consequences for the financial sector.&"
The official said there were some good performing states such as Maharashtra, Gujarat and West Bengal, but the situation was grim in some others. The gap between the average cost of supply and average realised revenue was abnormally high, the increase in power purchase cost was higher than that in rates and the increase in loan dues higher than that in gross fixed assets — indicating loans may be used to fund the revenue deficit than for creating an asset. Aggregate transmission & commercial (AT & C) losses have increased to unsustainable levels in some states, such as Tamil Nadu, Rajasthan and Madhya Pradesh.
The ministry's analysis of 40 utilities where unbundling (separating the generation, transmission and distribution functions of state electricity boards into separate units) has taken place shows 11 were making a profit after subsidy and the other 29 made losses. The net worth of 18 utilities were positive in 2008-09 -- Andhra Pradesh (4), Assam (1), Delhi (2), Gujarat (4), Karnataka (1), Maharashtra (1), Rajasthan (3), Chhattisgarh (1) and West Bengal (1).
According to the official, the ministry and FoR were unanimous that the Centre needed to work on measures to enforce financial discipline in states. "Financial liability of the government-owned distribution companies should be treated as deficit of the state for the purpose of enforcing discipline. Loss reduction should be the main focus of reforms and the Government of India should impress upon the states to require their discoms to invest in high voltage distribution systems to control theft. Segregation of agricultural feeders should be done by all distribution utilities. More important, non-performance of distribution companies should be dis-incentivised and penalised," the official said.
The ministry has asked state governments to take effective steps to reduce AT & C losses by curbing pilferage of electricity and setting up police stations and courts to deal exclusively with power theft cases. Distribution utilities would have to improve operational efficiency and meter all consumers. The has asked states to regulate subsidies in the distribution sector so that fiscal responsibility and budget management commitments were not breached.
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