India’s power industry is afflicted by a range of perennial problems in generation, transmission and distribution, most of which stem from the haphazard tariff structure with which power is purveyed to the users, both individuals and industry. Even after several decades, there is no rational tariff power structure in practice to keep the industry from being beaten black and blue, with the problem only getting aggravated by political parties indulging in competitive populism to get a fair price for its essential input. This is presumably so as the politicians simply promise by even preparing to pay any price to redeem their caprice to provide power free to the voters, be they farmers or households. Over the years, the tariff structure across the states, as power is a state subject, has become too convoluted and complex with consumer tariff categories for qualifying graded subsidies growing unduly unwieldy.
To get the issue in perspective, it would be relevant to study the salient observations of the House panel report on energy, tabled in the budget session of Parliament, of its earlier report on ‘Review of Power Tariff Policy — need for uniformity in tariff structure across the country’. Firstly, it noted that the Tariff Policy, 2016, explicitly contended that tariff progressively should reflect the cost of supply of electricity in such a way that the Appropriate Commission would notify a roadmap so that it is brought within plus or minus 20% of the average cost of supply. In fact, the roadmap also proposed intermediate milestones, based on the approach of a gradual reduction in cross subsidy. Even as the response from the states was quite positive, the Committee also underscored the need for not only restriction of cross-subsidy within a band but also for bringing more transparency in this matter for ensuring some semblance of and an iota of improvement of the financial health of distribution power companies (discoms). The power ministry was on record that the key issues impacting financial performance of distribution companies/departments (where states themselves undertake the distribution job) continue to be “operational inefficiencies and non-payment of electricity dues by state government departments”’; collaterally, other causes include brittle or little corporate governance, tariffs not being reflective of costs, poor billing, collection ineptitude and non-payment of subsidy dues doled out by the government to discoms/departments. In a written response to a query in the Lok Sabha on February 9, minister of power and new and renewable energy R.K. Singh said the total dues furnished by discoms and the PRAAPTI portal as on January 30 to generation companies (gencos) amounted to balance legacy dues (after payment of six EMIs) of `1,01,158.66 crore, current dues (excluding disputed and before default trigger date) of `34,359.18 crore, and over dues, excluding disputed after default trigger date, of `25.2 crore. In the face of such gargantuan dues dogging discoms, their salvation remains distinctly and dismally dubious unless surgical actions are initiated to revamp their operational efficiencies through helpful interventions.
It is under this grim scenario that the Centre launched the UDAY scheme with an overall view to tone up operational and financial health of state-owned discoms through efficiency improvements and financial restructuring in generation, transmission and distribution (all states and union territories, save Odisha and West Bengal and UTs of Delhi and Chandigarh joined UDAY). As a result, state discoms reported improvement which include among others, (i) reduction in aggregate technical and commercial (AT&C) losses from 23.7% in fiscal 2016 to 20.93% in fiscal 2020 and (ii) reduction of average cost of supply (ACS)—average revenue realised (ARR) gap from 0.48 paisa per kWh in fiscal 2016 to 0.3 paisa per kWh in fiscal 2020. It may be recalled that for 2018-19, the ACS and ARR were `6.15/kWh and `5.55/kWh respectively with a gap of `0.60 kWh (9.75% of ACS) without UDAY Grant and Regulatory Income.
It is reported that based on the performance of the states under UDAY, under the Integrated Power Development Scheme (IPDS), funds worth `834.41 crore were extended to a dozen states as financial fillip to procure 41.51 lakh smart meters, the installation of which is important to trace and track subsidy beneficiaries. In point of fact, under the Revamped Distribution Sector Scheme (RDSS), prepaid smart metering was done as a key innovation on an outlay of `1.5 lakh crore with gross budgetary support of `23,000 crore and `25 crore for prepaid consumer smart meters by 2024-25. The House Panel was informed by power ministry officials that so far, smart metering projects of `1,15,493.79 crore have been sanctioned under RDSS, which covers installation of 17,34,39,869 prepaid smart meters, 49,02,755 numbers of DT meters and 1,68,085 numbers of feeder meters across 23 states/UTs. The scheme aims to reduce the AT&C losses to pan-India levels of 12%-15% and ACS-ARR gap to zero by 2024-25.
Recognising the impact of cross-subsidies as being cost-ineffective to industries which primarily absorb the subsidy doled out to others, thereby attenuating their global competitiveness, the power ministry told the committee that the proposed revised Tariff Policy, presently on the anvil, provides that the Appropriate Commission might determine the tariff without taking into account any subsidy components. As such, any subsidy to be given to any category of consumers shall be given by way of direct benefit transfer directly into the bank account of the consumer or their consumer accounts with the distribution licensee to be reflected in the electricity bill of the government! This, if accepted by state governments pan-India, it would only benefit the deserved category of users so that affordable people enjoying first 200 units free of electricity supply as in Delhi and Punjab or 100 units as in Tamil Nadu and other states that are fiscally prudent would stand stripped of this subsidy; it is akin to the abnegation of railway concessions extended to senior citizens! The moot point is whether the state will take the bitter medicine that checks their electoral freebie or regulate the same by restricting it to deserving lots only even as their generation and transmission power companies’ finances would see a distinct improvement.
At the end of the day, it needs to be reckoned that the central government is very keen on cleaning the Augean stables of the dilapidated power system in the country that has been held hostage by political parties for partisan ends. Now that the business-as-usual approach is shed lock, stock and barrel, the need for simplification and rationalisation of power tariff structure is too insistent to be ignored any longer. With the government working on the revised Tariff Policy, which is presently under active consideration for legislative imprimatur through the requisite amendments to the extant domain Act, the power ministry catalogued such important changes that include among others, (i) the price of electricity should be based on cost of supply of electricity which primarily depends on voltage supply, connected load and energy consumed. (ii) no individual category/subcategory shall be prescribed for temporary supply. This might hopefully make political parties playing power connections to mushrooming colonies that dot the urban landscape to think twice before resorting to such gimmicks. Such supply may be provided at fixed multiple cost of supply for that category. (iii) the fixed charge component in the tariff should progressively reflect the actual share of fixed cost in the revenue requirement of discom licensees. (iv) in order to achieve the simplified categorisation, the process of merging of existing categories/sub-categories and slabs shall be carried out progressively; (v) a separate category for electric vehicle (EV) charging stations may be created, if required. All these proposed measures will give a fresh breath of air to the beleaguered domestic discoms that find difficulty in breathing normally!
(G. Srinivasan is a senior economic journalist based in New Delhi.)
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