Discoms unsung heroes of Covid-19 pandemic

Many think that Discoms (Power Distribution Companies) should be considered as the unsung heroes of Covid-19 pandemic for ensuring power supply to health care and enabling millions of people to work from home. Even with the steep fall in billing and disruption to their cash flows, Indian Discoms did not compromise on the supply of power to the end-users. The increasing unpaid dues from consumers aggravated the financial challenges of Discoms and interrupted the payments to power generators up the supply chain. The central government has announced a special relief package of Rs 900 billion for the Discoms in India.

The pandemic had led to a significant reduction in electricity consumption as the industries and commercial establishments were shut down. This, in turn, resulted in a drastic fall in the revenue of electricity distribution companies in India, exacerbating their pre-existing poor structural challenges.

The distribution sector consists of Discoms responsible for the supply and distribution of energy to the consumers (industry, commercial, agriculture, domestic, etc). Significantly, this sector is the weakest link in terms of financial and operational sustainability. It is worth noting that the total outstanding dues of Discoms payable to generators/creditors as of February 2019 stood at an alarming level of Rs 418.81 billion, as per data from 58 Discoms reported by 17 participating Gencos (Generation Companies). This included the overdue amount of Rs 267.56 billion, which is more than 60 days payable to the generators.

Fortunately, the last Union Budget proposed ground-breaking reforms to transform the struggling Discom ecosystem focusing on, introducing retail competition, and infrastructure creation. The result-linked power distribution sector scheme with an outlay of Rs 3 trillion is expected to revolutionise electricity distribution in the next 5 years. It was indicated that the disbursement of allocated funds is linked with following the implementation of smart meters and submission of roadmaps to reduce the overall (AT&C) losses by the Discoms.

One of the key reforms areas as undertaken by the Centre is empowering the consumers. Giving consumers the right to select the energy provider can go a long way, empowering the consumer to have a voice on deciding his/her energy mix as well. A good example for this would be the Consumer Choice Aggregation (CCA) programmes which allow consumers to customise their energy portfolio. The environmentally conscious consumers have the ability to incorporate more renewable energy sources into their consumption that will significantly impact the upstream power procurement decision of the utilities and force them to make greener choices. This will ultimately support the Nation's ambitious targets for renewable generation and ensure access to clean electricity.

Mind you that power distribution companies collect payments from consumers against their energy supplies (purchased from generators) to provide necessary cash flows to the generation and transmission sectors to operate. Due to the perennial cash collection shortfall, often due to payment delays from consumers, Discoms are unable to make timely payments for their energy purchases from the generators. This gap/shortfall is met by borrowings (debt), government subsidies, and possibly, through reduced expenditure. This increases the Discoms' cost of borrowing (interest), which is inevitably borne by the consumer. This also undermines the ability of the Discoms to purchase and distribute power to fulfil their Universal Supply Obligation (USO) as defined in the Electricity Act 2003 or borrow for capital expenditure to meet load augmentation and growth requirements.