Model Question and Answers for APSC | Highlighting the issues associated with power discoms in India, discuss whether privatizing discoms can help in this regard.
Ans : Discoms are power distribution companies. The pandemic has pushed discoms deeper into the red, while the government’s big reform scheme UDAY has flopped. A new scheme has been announced.
The discoms face the following issues:
1. Operational inefficiencies due to huge technical and commercial losses (AT&C) at 21.4% are primarily caused by power theft, poor payment collection procedures, and inadequate tariff hikes.
2. Big commercial customers who pay higher tariffs are engaging in private power purchase through open access i.e. directly buying from the suppliers bypassing discoms
3. Lack of political will and transparency in dealing with phasing out of energy subsidies for the consumers
4. Coronavirus-induced lockdowns over the past year have made matters worse. The fall in demand was particularly severe in the highertariff industrial and commercial segments, which are used to cross-subsidise lower-tariff residential users.
5. After the one-time measures under UDAY, the power purchase costs have now increased. Further, the input costs of coal and freight have gone up
6. Heavy Indebtedness
7. DISCOMs have delayed payments owed to solar and wind energy developers making investments into the sector extremely challenging.
In this context, privatization of discoms is attractive because
1. There are sufficient case studies when private players have been proved to run cash strapped discoms successfully via more efficiency, increased revenue and improved consumer services. For e.g. the AT&C losses in Delhi after the privatization in 2002 has been brought down from a high of 53% to around 8%.
2. Due to improved network efficiency and lack of political interference.
3. Privatization will eliminate issues such as payment delays, power cuts, and lack of marketbased electricity pricing and stimulate economic activity.
However, privatization of discoms needs to be accompanied by other measures such as providing autonomy to regulatory bodies; cooperative federalism between centre and state; reinventing the revenue model of discoms which should be conducive to the growth of rooftop solar and openaccess power.
The newly launched scheme -- Reforms-Linked, Result-Based Scheme for Distribution (RLRBSD) --
1. It will provide assistance to discoms for infrastructure creation, including pre-paid smart metering, feeder separation (supply of electricity to agricultural and non-agricultural consumers) separately and upgradation of systems tied to financial improvements.
2. It targets reducing electricity supply (AT&C) losses to 12-15 per cent, and the gap between cost and revenue to zero by FY25.
3. Unlike in the past, discoms will get their share of grants from the government at the end of the year, only if they achieve their pre-set targets for the year.
4. It is expected to usher in long-pending reforms in a sector reeling under heavy debt and payment overdue.