Address discoms' performance issues

The rescue plan for the loss-making state electricity boards, approved by the Union Cabinet, is more ambitious and perhaps more practicable than previous attempts. This is the third such effort by the Central government in the past over 10 years to tackle the problems of state power distribution companies, which are weighed down by debt and have no hope of commercial viability in the present circumstances.

Power Minister Piyush Goyal is hopeful that the plan, called the Ujwal Discom Assurance Yojna (Uday), will lead to a cleanup of the financial mess in the power distribution sector in a few years. The accumulation of debt by the discoms, which now collectively stands at Rs 4.3 lakh crore, is the biggest problem facing the sector. This has badly hit the finances of lenders, mainly public sector banks, and affected all other stakeholders.  At present, power producers have surplus power while there is blackout in many parts of the country.

The main reasons for the financial straits of discoms are free power or hugely concessional tariffs, pilferage of power, transmission losses, billing inefficiencies and mismanagement. The raising of tariffs is not an acceptable idea for politicians. The plan envisages a gradual takeover of much of the loans of discoms by state governments which can issue bonds to raise funds. The principle is sound. States have to accept responsibility for the SEBs’ finances. The loans will not be included in the calculation of the states’ fiscal deficit for two years. The remaining debt of discoms can also be converted into bonds at concessional rates. The plan also proposes to revise coal linkages to reduce the distance from mines to power plants and to take other steps to reduce the cost of power. It aims to reduce technical and commercial losses. Basically, it is a bailout plan with a carrot and stick policy underlying it, and it is optional for states to adopt it.

The programme is considered more comprehensive than previous ones because it goes beyond mere restructuring and proposes efficiency improvement, cost cutting, reduction of losses, increases in tariffs, involvement of regulators and, ultimately, making states accountable for the performance of discoms. But the power sector cannot attain good health till there is a fairer and more realistic correspondence between costs and tariffs. Discoms will also have to be managed more professionally. Corruption flourishes in many of them. The bailout plan has been generally welcomed, especially by banks. But it will offer only a temporary solution if all the performance issues are not fully addressed.