• UGI USER
  • Aug 17, 2023
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Q. Highlighting the issues associated with power DISCOMS in India, discuss whether privatizing discoms can help in this regard.

Approach:

  • Highlight the state of power generation in India.
  • Write about various issues being faced by power DISCOMS in India.
  • Present arguments how privatizing DISCOMS can help address these issues.
  • Conclude with a way forward.

 Answer:

India became the third largest electricity generator in the world with installed capacity of power generation reaching 344 GW in 2018. Further, power generation witnessed a compounded annual growth rate of 8.9% between 2006 and 2018.

However, the DISCOMS i.e. power distribution companies, continue to be faced with following issues:

  • Operational inefficiencies: Due to huge technical and commercial losses (AT&C) at 21.4% which are primarily caused by power theft, poor payment collection procedures, and inadequate tariff hikes.
  • Increasing open access transactions: Big commercial customers who pay higher tariffs are engaging in private power purchase through open access i.e. directly buying from the suppliers bypassing discoms.
  • Lack of political will and transparency: In dealing with phasing out of energy subsidies for the consumers.
  • Decline in demand during lockdown: Revenue of discoms have fallen due to halt in commercial activities while domestic users pay lower tariffs.
  • Increased Power Purchase Cost: After the one-time measures under UDAY, the power purchase costs have now increased by 5 per cent in the first nine months of 2018-19. Further the input costs of coal and freight have gone up.
  • Indebtedness: According to the PRAAPTI portal, power producers’ total outstanding dues owed by discoms rose over 47% year-on-year to Rs. 1.33 lakh crore in June 2020.
  • Financial incompetence: DISCOMs have delayed payments owed to solar and wind energy developers making investments into the sector extremely challenging.

The Government launched various initiatives like UDAY aimed at reinvigorating discoms, but discoms losses have not been minimized. In this context, privatization of discoms is being seen as a measure to revitalize discoms due to following reasons-

  • Past experiences: There are sufficient case studies when private players have been proved to run cash strapped discoms successfully via more efficiency, increased revenue and improved consumer services. For e.g. the AT&C losses in Delhi after the privatization in 2002 has been brought down from a high of 53% to around 8%.
  • Operational autonomy: Due to improved network efficiency and lack of political interference.
  • Operational efficiencies: Privatization will eliminate issues such as payment delays, power cuts, and lack of market-based electricity pricing and stimulate economic activity.
  • Generating private sector appetite: Amongst Indian and international investors, various PPP models will be tested and it will also provide confidence to larger states and utilities to undertake privatization based on improvements achieved.

However, privatization of discoms needs to be accompanied by other measures such as providing autonomy to regulatory bodies; cooperative federalism between centre and state; reinventing revenue model of discoms which should be conducive to the growth of rooftop solar and open access power.