Form of words:
IEveryone is busy discussing the crisis in the coal sector. Maybe so is right. However, the real problem is much more serious and that of the power sector. If one looks at the power sector, it turns out that the distribution companies or discoms are in a very bad shape. Non-performing assets in power generating companies or gencos are on the rise. The coal shortage has recurred. Till a few days back, there were many power generating units which were severely short on coal. Data released in the Power Finance Corporation report on the performance of power utilities 2019-20 shows that Genco received over Rs 2.16 lakh crore from discoms in 2019-20. It has actually increased from Rs 1.79 lakh crore during 2017-18. In return, Genco owes Coal India Limited Rs 20,000 crore.
It would not be an exaggeration to say that the poor health of DISCOMs is the primary cause of problems in India’s power sector. The relief to DISCOMs from “UDAY” (Ujwal Discom Assurance Scheme) launched in 2015 was temporary. Uday is a really good idea. This method worked in Gujarat. The state has benefited from the reforms made in the power sector. Perhaps it was rightly felt that other states would benefit from this model. However, it did not happen the way it was envisioned.
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discom in debt
One of the most important features of Uday was the acquisition of 75 per cent of the discoms. loan Due to stand by the States on 30 September 2015. This was the easy part and it provided the financial space he needed to improve his finances, including his balance sheet. In fact, many discoms benefited from this provision and some of them even showed benefits due to lower interest burden, though it was feared that such loan transfers would impact the finances of the states. The more difficult part relates to elimination of AT&C (Total Technical and Commercial) losses reduction, ACS (Average Cost of Supply Per Unit)-ARR (Average Actual Revenue) difference, feeder metering, DT (distribution transformer) metering, price rationalization Was. , e.t.c.
Had the DISCOMs carried out the hard work done in Gujarat, it could have led to their revival. But a large number of them failed. If we compare 32 UDAY states and union territories between FY 2019 and FY 2020, then Power Finance Corporation (PFC) The report shows that while average AT&C losses improved slightly from 22.4 percent to 21.9 percent, 14 of them were actually in worse shape. As a result, most of the discoms are still in trouble as the fundamental issues have not been addressed. Despite the demand for power, discoms do not have the money to do new PPAs. India’s per capita consumption is still one third of the world average. Ironically, because of the pricing structure, most DISCOMs incur more losses as they oversell.
The poor financial condition of the Discoms is also affecting the financial health of Genco. DISCOMs have a huge dues from GENCOs and these are increasing day by day. Genco’s Plant Load Factor (PLF) is also being adversely impacted as discoms are unable to clear the demand through fresh PPAs. There are many other factors that are influencing the finances of GENCOS, but these two contribute significantly. Genco is in heavy debt and it is becoming increasingly difficult to repay the loan. A major part of this debt is likely to become non-performing assets (NPAs). This in turn will affect the banking industry which is already reeling under the burden of NPAs. This is also affecting Coal India Limited (CIL). With Genco not getting their dues from the Discoms, they are unable to make regular payments to CIL.
Thus, a serious crisis is at hand which may affect the economy as a whole. DISCOMs are at the heart of this malaise. From there the remedial action should start.
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Gujarat Model
Blue print for revival of DISCOMs is available and has worked in some states. Now the key is to implement it in other states as well. If there is one model from Gujarat that needs to be replicated, it is the reforms made in the power sector. It will be a painstaking endeavor that may not be new to begin with, but it is significant. This cannot be accomplished sitting in Delhi. Assistance will have to be taken from states like Gujarat and the details will be worked out by sitting with the concerned state government officials and other stakeholders.
Coal production will have to increase at the rate of (8-9 per cent) during 2014-16. This can be done even now by following the same strategy. The central government will have to play the role of a facilitator by enabling and ensuring speedy approvals. At the central level, they will primarily be related to environment and forestry. Most of the action on coal takes place in the states. Therefore, connectivity with the states has to be increased. The ongoing “war” between the Union and the States has to stop. The value proposition will have to be communicated to the states as was done earlier.
As mentioned earlier, many jenko are on the verge of getting “sick”. Some of them may already be sick. Therefore, it is necessary to revive them. Each unit will have to be looked into by an Empowered Committee constituted by the Government in this regard. Then they have to come up with a comprehensive plan which is not limited to financial restructuring only. There can be a large number of disputes which will need to be resolved. This committee should be empowered to settle such disputes.
Coal supply is a problem. The problem was resolved between 2014 and 2016. It will be resolved again, but the real problem is in the power sector. The magnitude of the situation now needs to be recognized. And reforms were given place and pursued. A “powerless” future stares at us otherwise. The good news is that some states have moved in this direction and are reaping the benefits. Others now need to learn from them before it is too late.
The author is a retired civil servant and former Secretary to the Government of India. Thoughts are personal.
(Edited by Neera Mazumdar)
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