PRIVATISATION OF POWER DISTRIBUTION COMPANIES (DISCOMS)
In December 2024, the Supreme Court supported the government’s decision to privatize power DISCOMs in Chandigarh, marking a significant step towards reforming India’s power distribution sector. This decision has reignited debates about the benefits and challenges of privatization in ensuring efficient and sustainable electricity distribution.
Why is there a Need for Privatisation of Power DISCOMs?
High AT&C Losses:
- Aggregate Technical and Commercial (AT&C) losses in India remain high at 17.6% in FY24.
- These losses result from electricity theft and unbilled supply, weakening the financial health of DISCOMs and limiting investments.
Operational Inefficiencies:
- Billing efficiency is only 87%, and collection efficiency stands at 97.3%, reflecting systemic gaps in operations.
- Such inefficiencies reduce revenue and add financial strain on DISCOMs.
Financial Deficit:
- The gap between the Average Cost of Supply (ACS) and Average Realisable Revenue (ARR) widened from 33 paise per unit in FY22 to 55 paise per unit in FY23.
- This disparity increases debt and dependence on state subsidies.
Subsidy Dependence:
- The financial deficit in the power sector grew to Rs. 79,000 crore in FY23 from Rs. 44,000 crore in FY22.
- This unsustainable reliance on subsidies reflects poor fiscal management.
Rising Power Demand and Costs:
- An 8% rise in power demand in FY23, coupled with reliance on expensive coal imports, pushed the average power purchase cost up by 71 paise per kWh.
- Without reforms, these costs could further destabilize public-sector DISCOMs.
Proven Success of Private Models:
- In Delhi, privatization reduced AT&C losses from over 50% in 2002 to single digits.
- Annual savings of Rs. 1,200 crore were achieved, showcasing the potential of professional management.
Limited Impact of Public-Sector Reforms:
- Initiatives like the Ujwal DISCOM Assurance Yojana (UDAY) have had limited success in addressing losses or improving operational efficiency.
- Private participation is needed to introduce accountability and modern technologies.
Challenges of Privatisation of DISCOMs
Employee Opposition:
- Workers fear job losses, unfavorable service conditions, and retrenchment.
- Experiences such as Delhi’s voluntary retirement schemes highlight these concerns.
Legal and Regulatory Hurdles:
- Privatization must comply with the Electricity Act, 2003, which often delays processes.
- In Chandigarh, legal disputes questioned the eligibility of private bidders, causing delays.
Consumer Tariff Concerns:
- Tariffs may increase post-privatization to recover costs, leading to potential consumer backlash.
- Balancing affordability and cost recovery poses a challenge for regulators.
Lack of Transitional Support:
- Odisha’s failed privatization in the 1990s stemmed from inadequate financial and operational support.
- In contrast, Delhi’s success was aided by transitional funds of Rs. 3,450 crore.
Government Steps to Support State DISCOMs
Schemes:
Ujwal DISCOM Assurance Yojana (UDAY):
- Launched in 2015 to alleviate financial stress.
- Allowed states to take over 75% of liabilities through low-interest bonds.
- Promoted measures like theft reduction and smart metering.
Revamped Distribution Sector Scheme (RDSS):
- Budget: Rs. 3,03,758 crore (FY 2021-22 to FY 2025-26).
- Aims to reduce AT&C losses to 12-15% and eliminate the ACS-ARR gap by 2024-25.
Integrated Power Development Scheme (IPDS):
- Focused on strengthening urban power infrastructure and improving reliability.
Other Measures:
Integrated Ratings:
- Annual evaluations of DISCOMs’ operational and financial performance encourage accountability.
Financial Support:
- In FY23, state governments provided 108% of booked subsidies to sustain DISCOM operations.
- Transitional funding (e.g., Delhi) helped manage initial hurdles post-privatization.
Regulatory Reforms:
- Late Payment Surcharge Rules reduced payment delays, easing liquidity pressures.
Privatisation in Union Territories (UTs):
- Success stories include Dadra and Nagar Haveli and Daman and Diu (2022).
- Progress in Chandigarh and Puducherry highlights ongoing efforts.
Way Forward
- Engaging Stakeholders: Involve employees, consumers, and political groups to address concerns and build consensus. Clear communication about safeguards, such as pension sharing, can reduce resistance.
- Strengthening Regulations: Empower State Electricity Regulatory Commissions to ensure fair tariffs and efficient operations.
- Phased Tariff Rationalisation: Gradually adjust tariffs while offering subsidies to vulnerable consumers to balance affordability.
- Modernizing Infrastructure: Prioritize smart grids, metering, and technology adoption to improve efficiency.
- Encouraging Competition: Introduce retail competition in phases, giving consumers a choice and enhancing service quality.
- Learning from Past Experiences: Use best practices from successful models like Delhi and avoid mistakes made in Odisha’s failed privatization.
Conclusion
Privatization of DISCOMs offers a path to operational efficiency, financial stability, and better service delivery. However, it requires careful planning, stakeholder collaboration, and robust regulatory frameworks to address challenges and ensure a smooth transition. With rising power demand and evolving energy needs, privatization can play a pivotal role in transforming India’s power distribution sector.