Costlier power needed to rescue discoms

Regular rate increases, coupled with resumed lending by banks and other financial institutions, might save power distribution companies (discoms) from a situation such as the one that happened 10 years ago, when the government had to organise a rescue package.

According to experts, a 15-20 per cent rise in rates for a couple of years or more may save the situation. Some states have been regularly revising prices and others have begun to do so to save their discoms — Rajasthan recently allowed a 24 per cent rise and Delhi one of 22 per cent. Tamil Nadu, Uttar Pradesh, Punjab and Himachal are expected to do so this year, says Central Electricity Regulatory Commission Chairman Pramod Deo.

Even a 15-20 per cent revision would, he said, leave some backlog. With elections due in some states, the revisions might get delayed.

The discoms in Rajasthan, Tamil Nadu, Orissa, Punjab, UP and Andhra Pradesh are in a bad financial situation. In the country, apart from the cost of operations, the rising price of imported coal has started impacting the sector, he added.

A senior executive from a discom said the distribution segment was the worst affected in the sector. State governments should be willing to allow major rate increases to ensure sustainability of the discoms, he added.

Discoms have invariably not been able to recover their cost of operations because of the mismatch with rates and non-release of subsidy by some governments. Their accumulated losses were Rs 1,06,347 crore in 2009-10, from Rs 75,000 crore in 2008-09, according to the ministry of power. Apart from losses, the loan dues for the utilities were Rs 1,77,602 crore as on March 31, 2010. The average

cost of supply was Rs 3.41/kwh in 2008-09 from Rs 2.93/kwh in 2007-8 and Rs 2.75/kwh in 2006-07. Average revenue realised was Rs 2.91/kwh in 2008-09 from Rs 2.65/kwh in 2007-08 and Rs 2.49/kwh in 2006-07, according to the ministry. Subsidies from state governments were 18.94 per cent (Rs 29,665 crore) of the total revenue of state utilities in 2008-09, up from 11.17 per cent (Rs 13,590 crore in 2006-07) and 14.12 per cent (Rs 19,518 crore) in 2007-08.

In 2001-02, on the recommendation of a committee under Montek Singh Ahluwalia, now deputy chairman of the Planning Commission, long-term bonds were issued on behalf of the utilities, to be discharged by the state governments.

Steps underway

Banks and institutions like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) had stopped lending to discoms. With new criteria set out by the power ministry, PFC and REC have resumed lending. These include regular rate revisions and maintenance of audited accounts, for a discom to be eligible for access funding. This may also deter state governments for forbidding rate rises, beside helping ensure sound financial health of the utilities.

A committee has been set up under the Planning Commission member B K Chaturvedi to formulate a turnaround plan for ailing discoms. It would consider the recommendations of the Shunglu committee, made last month, on the financial health of discoms. The Shunglu panel had suggested an SPV as a corporate entity to buy out distressed debts of banks to ailing discoms.