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UDAY could liberate discoms from financial morass

EM news bureau ,  Wednesday, December 09, 2015, 13:45 Hrs  [IST]

Even after six decades of Independence, despite all the achievements that India has recorded on the global arena, its stark inability to infuse commercial viability to the power distribution sector stands as a huge blemish. While generation has seen technical advancements like ultra supercritical technology and transmission has earned us the distinction of having the world’s highest voltage level of 1,200kV, India’s power T&D losses at 25 per cent is an abjectly shameful reality.

The reasons for power distribution’s state of apathy are deeply rooted in legacy issues. Power has traditionally been a political subject. Politicians transcending all parties and ideologies still believe that to stay in power, they must trade in power. Even when it is not asked for, power should be given at huge subsidies or even free. This, and only this, will ensure populist mandate. Any steps towards increasing power tariffs, even if it is for the eventual betterment of the consumer, are dithered upon.

The financial health of government-owned discoms is pathetic. The aggregate losses of power distribution companies (discoms) stood at an alarming Rs.3.8 lakh crore as of March 31, 2015. The total outstanding debt of discoms was Rs.4.3 lakh crore as of same date. The fact that discoms are funding their operational losses through high-cost borrowings is enough indication that power distribution, as an economic activity, has since long lost its viability. Discoms are losing money due to high T&D losses, and they cannot incur capital expenditure in the wake of operational losses. Raising tariffs cannot be justified as it is not matched by any improvement in services. Discoms are trapped in a serious maze from which their liberation will need nothing more than mammoth political will.

Private sector participation, which could have changed the fortunes of the power distribution sector, has been opposed vehemently by discoms. State power utilities have shown more spontaneity and enterprise in opposing potential privatisation than they have in working in the interest of the consumer.

At this juncture, the Ujwal Discom Assurance Yojana (UDAY) recently approved the Union Cabinet promises to offer a breakthrough. Through UDAY, states have been offered a potential solution to become operationally efficient and break even in 2-3 years. At least on paper, UDAY can be potentially transformative. Given that state governments have squandered at least two such bailout proposals in the past, they have another opportunity to put their inglorious power distribution sector in order. It is very much in national interest that state governments subscribe to the UDAY scheme and at least sow the seeds of potential recovery.

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