New Delhi: India’s Union Minister of State for Power and New and Renewable Energy, R K Singh, has alluded to another “reform linked support scheme” for electricity distribution companies (discoms), a bulk of which are state-run. The scheme is purported to be valued at INR 3,00,000 Crore (USD 40.86 billion). This comes soon after a support package of INR 90,000 Crore (USD 12.26 billion) was made available to state-run power discoms. This was to help them pay for their creditors – the power generation companies, in the wake of their inability to realise the revenues as a result of COVID-19 and the already built up dues before the onset of the pandemic. Outstanding dues continue to build and the support is only a palliative. Let’s trace the flow of money in the power sector.
Power generation companies procure coal from government owned coal companies or procure imported coal. Typically, this payment is up-front for guaranteed coal supply and available data suggests that the coal suppliers are ring-fenced from the financial distress the sector faces otherwise. Power generation companies in turn sell power to discoms. In FY19, the total value of power sold to discoms was to the tune of INR 5,62,000 Crore (USD 76.54 billion). As of July 2020, the outstanding amount to power generation companies is ~20 per cent of this value. It is worth mentioning that power generation from sources such as renewable energy and hydro are also impacted by this non-payment but the majority of the build-up is for thermal generators.
Discoms further sell power to retail consumers (households, farmers, industries, commercial entities and others) and have the toughest task of collecting revenues from each of the end consumers. In FY19, the total revenues that discoms managed to recover from their consumers was ~INR 4,87,000 Crore (USD 66.33 billion). Herein is the biggest challenge the sector faces – revenues are unable to cover for even the cost of electricity procured. We are yet to account for the operating expenses of discoms (salaries, pensions, maintaining distribution assets, financing costs etc.) and this comes in at ~INR 1,60,000 Crore (USD 21.79 billion). There are grants and subsidies that are provided by the respective states to their discoms and this amounts to INR 1,86,000 Crore (USD 25.33 billion). We still don’t have enough to pay for the costs the sector is incurring. The sector (specifically discoms) then borrows from financial institutions to make up for this loss and pay their creditors. This cycle repeats itself year after year.
