Face power shortage if dues of gencos keep mounting
State power distribution companies (discoms) are back in the spotlight with the Centre barring 13 states from buying or selling electricity on power exchanges, citing unpaid dues to power generation companies (gencos). The move could spur power shortages, and while some rushed to clear dues, others may consider challenging the Union’s Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, notified in June. Theoretically, a late fee rightly penalises discoms and compensates gencos for delayed revenue realisation. But debarment from exchanges increases purchasing costs for discoms and unwittingly deepens their financial burden, reasoned the Centre for Energy Finance. A Niti Aayog Report pegged the gross debt of discoms to have touched Rs 6 lakh crore by March 2022—double than the pre-Uday era—prompting an alarmed Ministry of Power to bugle a warning about a full-blown banking crisis.
Discoms’ woes seem never-ending because they cut through the chain from power generation to billing, while solutions are often a day late and a dollar short. Fix one, and another erupts, and so on. RBI’s latest State Finances report stressed how state subsidies artificially depress electricity costs for farmers and households, taking it straight into the freebies vs welfare debate. For every unit of electricity sold, discoms are losing 32 paise, which is why their losses are 2.5 times above the world average.
As evidence from the past three bailouts shows, rescue packages strain state finances and the power sector as it accounts for 40% of states’ off-budget borrowings. The Centre is doing its bit—its recent stimulus package began supporting discoms with smart meters to cut losses, avoid power thefts, improve collections and bridge the revenue gap between the cost of power procurement and electricity tariffs. But we need a workhorse model to bring parity with peer nations, besides an institutional framework covering all entities like power exchanges, gencos, and discoms to fix the ‘leaking bucket’ at once. Discoms are integral for the power sector and the economy, as an efficient power supply is its life-sustaining artery.