Introduction

Overview of DISCOMs in India

DISCOMs refers to “Distribution Company”. It is responsible for the power distribution to consumers, it functions like a middleman, buys electricity from the producers, and then sells it to the consumers. The electricity distribution sector is crucial in ensuring the country’s energy security. In India, most DISCOMs are state-owned which supply around 80 % of power, there are some private players as well in this sector. Despite its importance, this sector is suffering from financial and operational challenges hindering its sustainability. This article analyses the current situation of DISCOMs with an overview of its economic health in which it suffers from issues like AT&C Losses, lack of adequate investments, and metering issues followed by Non-cost reflective tariffs, regulatory challenges, infrastructure deficiencies, Revenue, Planning, and Pricing Challenge. Government in response to all these challenges has installed many initiatives such as the Ujwal DISCOM assurance yojana (UDAY), Financial Restructuring Plans, Recent Reforms, and Legislative Changes. All these reforms are being implemented to pull DISCOMs up from the financial losses. This article will lead to the potential solutions to improve the economic sustainability of power distribution companies. A strategic approach is needed to navigate towards the secure future.

The current state of DISCOMs  

Overview of Financial Health

In the fiscal year 2022–23, state-owned, public electricity distribution companies had collectively accumulated losses approximately of Rs. 6.8 lakh crores. Since 2015–16, losses have been increasing at an average annual rate of 10%. If this trend continues, consumer tariffs are projected to rise by 20% annually over the next decade; even with significant efficiency improvements in the next five years, tariffs would still need to double merely to recover past losses, making such increases economically unviable It also contributes to liabilities undertaken to finance DISCOM operations. In March 2023, Tamil Nadu DISCOM reported losses of over Rs. 1.6 lakh crores and DISCOMs in Uttar Pradesh and Rajasthan reported losses of over Rs. 90,000 crores each. DISCOMs have seen four major financial bailout packages since 2001 and a scheme was contingent on many conditions for improvement in the operational performance of DISCOMs. The last financial restructuring package Ujwal DISCOM Assurance Yojana (UDAY) was to facilitate the takeover by the state governments of the mounting liabilities of DISCOMs from commercial banks and other lending institutions. Despite the scheme, the loss build-up has been substantial. There are significant government support provided to ensure the financial viability and efficient operations of DISCOMs every year. 

• Revenue Subsidies

It is provided to ensure that certain consumer segments, mainly agricultural consumers and domestic consumers, can obtain power free of cost or at concessional rates. The support amounted to Rs. 1.66 lakh crore for all state-owned DISCOMs in 2022-2023. It amounts to about 18% of the revenue required by the DISCOMs. The support is as high as 40 to 50 percent of DISCOM expenses in Karnataka and Madhya Pradesh. 

• Grants or Equity Infusion

This focuses on the timely and necessary capital investments, the majority proportion are central sector grants under electrification and network strengthening schemes, such as Deen Dayal Upadhyaya Gram Jyoti Yojana, Integrated Power Development Scheme and Revamped Distribution Sector Scheme (RDSS). Under this grant  a total of 1.4 lakh crores was provided to DISCOMs in 2022-23 by central and state agencies.

• Annual Loss Takeover

Most of the states have agreed to power sector reforms under which the borrowing limit is relaxed under the Fiscal Responsibility and Budget Management (FRBM) scheme. As part of the power sector reforms and while participating in the Centrally Sponsored RDSS scheme, some state governments have agreed to take over the losses incurred each year by DISCOMs. An aggregate of Rs. 23,000 crores of annual losses were taken over across DISCOMs in 2021-22, as reported in the 12th Annual Integrated Rating and Ranking of DISCOMs. This nearly doubled in a year to Rs. 43,600 crores by 2022-23. The bulk of the takeover was in Tamil Nadu, Uttar Pradesh, Rajasthan, Bihar, Telangana and Andhra Pradesh where cumulative loss quantum is significant. The aggregate annual loss of state-owned DISCOMs are comparable to 68% of the aggregate revenue deficit of state budget 2022-2023. There is a huge variation in the extent of losses across states. If the state government takes over annual losses, the impact on state finances would be significant.

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