Motilal Oswal
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Motilal Oswal

Discoms miss key UDAY targets as power purchase costs jump: Here's what experts have to say

Updated : May 21, 2019 03:03 PM IST

Losses by the power retailers, known as discoms, under the Ujjwal Discom Assurance Yojna (UDAY) continued to rise, with states like Uttar Pradesh, Bihar, Jharkhand, Rajasthan, Madhya Pradesh, Jammu & Kashmir and Chhattisgarh lagging far behind the actual targets.

According to the provisional data furnished by 26 states/UTs, operational efficiency of distribution companies across India stood at 19.05 percent at the end of fiscal 2019, while the target was to bring down these losses to 15 percent by FY19-end. The aggregate technical and commercial (AT&C) losses — electricity units lost on account of pilferage — are linked to operational efficiency.

To discuss this in detail, CNBC-TV18 spoke with Ashok Khurana, director-general, Association of Power Producers and Sabyasachi Majumdar, senior vice president and group head, ICRA Ratings.

The year preceding elections is typically the worst for power companies because states are reluctant to take tariff hikes, said Khurana.

"The UDAY scheme had three components – financial engineering, operational efficiencies and tariff rationalisation. The first one took off nicely but the other two did not take place as envisaged. States such as Telangana, Tamil Nadu have not increased tariffs in the last 5-6 years," said Khurana. "All experiments done over the past 15 years have not yielded the desired results."

“So, the only way forward is to have state-specific plans. In fact, the centre should not prescribe any loss control and let the states decide the trajectory," he said.

“We need to think in a holistic sense of the entire value chain,” said Khurana, adding that the entire system needs to move away from cost-plus method to efficiency parameters and commercialisation.

Usually the unaudited and audited numbers are not significantly different and the power ministry's estimated losses have gone up in FY19 compared to FY18 and collections have gone down in FY19, Majumdar said.

“In the last couple of years we have seen an increase in offtake in power of 5-6 percent but it is reasonable to believe that not much of the incremental supplies would have gone to relatively high paying commercial and industrial consumer but more towards low-end domestic consumers, where the tariff realisation is lower than that weighted average tariff or cost of supplies to the discoms,” said Majumdar.
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