India aims to revive its power discoms and energy sector

In order to achieve the objective of Narendra Modi’s five trillion-dollar economy, investments must be directed towards the infrastructure sector. The revival of power discoms, infrastructure investments in renewable energy and development of alternate energy sources will serve the purpose.

Hyderabad:The Center is preparing for key reforms in the country’s power sector. Finance Minister Nirmala Sitharaman has allocated Rs 22,000 crores in the budget towards power and alternative energy sources sectors, with the aim of making major changes in the distribution system.

In order to achieve the objective of Narendra Modi’s five trillion-dollar economy, investments must be directed towards the infrastructure sector. He announced that Rs 100 lakh crores will be utilized over the next 5 years towards improving the infrastructure. To that end, the working committee has released a comprehensive report on infrastructure investments worth Rs 102 lakh crores.

An additional Rs 3 lakh crores is expected to be added to the final expenses. About 24 percent of this amount is allocated to the power sector. Electricity is the essential for the economic development of any nation. India, which was once hit by power shortage, has now risen to the point of exporting electricity.

All the governments irrespective of political parties have contributed to this achievement. The Modi government has put impeccable efforts by providing electricity access to all the villages. With the Saubhagya scheme, every household could get electricity. But there are still many villages and households that don’t have uninterrupted power supply.

India lags behind in the world rankings in this regard. That is why this sector was given utmost importance and Rs 25 lakh crores were allocated specially to the power sector. Renewable power projects are given high priority. Nearly 40 percent of all electricity produced in the next 5 years is planned through ecofriendly and renewable energy sources.

Foreign investments are being invited to encourage this initiative. As of now, 47 percent of the total electricity is generated by private sector. The sector is currently facing many challenges. Power companies are mired in crisis. At first, traditional production companies are having trouble supplying coal. Second, distribution companies are not paying the dues to manufacturing companies. Third, there is no demand for equivalent supply.

Deficiencies in electricity supply has brought about significant changes in the power sector over the past few years. Currently, the entire country is connected through a single power grid. This is a huge step forward. While reforms in the manufacturing and supply sectors are satisfactory, there are several shortcomings in the distribution sector.

As of November 2018, distribution companies owe Rs 81,085 crores to the manufacturing companies. These issues have impacted the banks too. The debts of power companies are classified as illiquid assets, which damaged the financial position of banks. That is why the government is embarking on several reforms in the power sector. These reforms are divided into three categories. First, the structural ones. The most important one being the establishment of electricity regulation commission. Second, management reforms. With this, the consumer can purchase electricity from anyone with the “open axis” system.

Lastly, economic reforms. The central government has been able to provide financially viable distributors with the Uday scheme. All the Indian states except West Bengal have been utilizing this scheme. Though the distribution companies gained slight profits in the beginning, they went back to financial losses. Last year, the Center has come up with a new scheme to inculcate financial discipline.

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Accordingly, the manufacturing companies supply electricity to the distribution companies on credit policy. With this, the current dues have reduced but the past dues are still pending. Distributors form the weakest link in the power sector. The state governments have absolute control over these distribution companies. Issues such as lack of arbitrage, discrepancies in tariff, delay in paying the dues are plaguing the power sector.

In addition, the supply and trade risks are high. Foreign firms are hesitant to invest in these companies as they are unwilling to clear the dues for 2 to 15 months after the date of purchase.

Not all distribution companies function the same way. There are 41 state owned distribution companies in the nation. They are divided into 6 categories. Only 7 among them are high ranked while the rest came second.

There are no distribution companies from Telugu states among the first ranked ones. East Distribution Company of AP is in the second category. The remaining were placed in third and fourth categories.

Regional differences play a significant part in annual per capita consumption. The country’s average is 1,181 kWh while the western part of India has a per capita consumption of 1,573 kWh. Northeast consumes only 401 kWh while Telangana is leading with 1,727 kWh. AP uses only 1,388 kWh.

The Center is concerned about the financial condition of the distribution companies. If this situation continues, the entire power sector will be in crisis. Illiquid assets have increased in the banks which lent to distribution companies and new investments have declined. Even foreign companies are skeptical about investing due to delayed payments.

The Center is disappointed with Andhra Pradesh’s attitude towards power sector. The cause for worry is the allegations of corruption after YSRCP came to power. AP is the second largest producer of electricity in the country with an investment of Rs 60,000 crores. It has 4,092 MW wind power and 3,230 MW solar power production. The company which invested in these projects has consulted the central and state governments and asked to revoke the decision.

It explained the difference between civil works and renewable energy contacts. It decided to address the troubles of the state. Several meetings were held and loan assistance was provided. It was prepared to buy some electricity through NTPC. The central government has provided many such incentives to the states. Yet the AP government did not budge.

The central government has finally warned about the impact it would have on the national economy. It is finally prepared to take some serious action. It has warned that it will resort to drastic measures like cutting off debt relief and coal supply from government agencies. One of the reasons for these steps being AP’s debts of Rs 83500 crores (25 percent of the total debt).

The state government has decided to transfer the assets of the state electricity board to the state electricity finance corporation. The officials said that they want to pay the dues through bank loans.The Center has focused on reforming the distribution sector. The reforms include shrinking the supply losses to 10 percent, setting up smart meters nationwide, introducing scientific methods for tariffs, improving the supply and establishing direct contact with the consumer.

This scheme can be implemented in three phases. The first phase will be installation of smart meters by 2022. The second phase will be the installation of insulated protective wiring, special feeders for agriculture, rural and household usage. Data acquisition and supervisory control will be achieved through SCADA. Training programs will be implemented in the third phase.

The government said that privatization of loss-making firms is a part of this scheme. The distribution companies in Delhi are completely privatized. Supply and trade losses were brought down to 16 percent from the previous 40 percent.

The Odisha government is taking similar measures. Several distribution companies might follow the lead of these experiences. Quality uninterrupted power supply is possible only when the right suppliers and right governance. Only then, India will progress socially and economically.