A sign of conflict between the central and state governments on the issue of reforming the power distribution infrastructure

- Many state governments refrain from making necessary investments in discoms

Despite the steps taken by the Center in the last eight years to strengthen the state-owned power distribution companies (discoms) in the country, the condition of the discoms has not seen the expected improvement, the power ministry of the Union is moving to tighten the conditions for the grants given to the states under the revamped distribution sector scheme. The Center provides grants under the Revamped Distribution Sector Scheme to the States for installation of prepaid smart meters (a system that automatically shuts off power supply when the prepaid balance is exhausted), modernization of power distribution infrastructure, etc.

The central government has been trying for some time now to eliminate political interference in the country's power sector. One of these efforts is a proposal to create competition in the power distribution sector by licensing private companies. The Electricity (Amendment) Bill, 2022 for this is currently referred to the Parliamentary Standing Committee. The All India Power Engineers Federation has protested against the privatization of discoms owned by state governments. If this bill is passed, political leaders and farmers' organizations are of the opinion that apart from the employees of the sector, political leaders and farmers' organizations will reduce the dominance of politicians in the power sector in addition to cheap electricity. To win state assembly elections, political parties do not fail to promise to provide free services to farmers and poor and middle class voters, one of which is free electricity supply.

To prevent pollution caused by coal-based power generation, many countries, including India, are making major changes in the power generation sector today and are emphasizing power generation such as wind and solar power. Since 2014, India has invested approximately $80 billion in renewable energy assets. Massive investment in power generation sector cannot revolutionize the power sector. In addition to production, discipline has become necessary on the power transmission and distribution front as well. The distribution sector in particular is still in a challenging position. Even though the losses of the country's discoms are coming down, the extent of the losses and the ongoing political interference in the power distribution sector continue to pose threats to the power sector.

It is estimated that India will need an investment of 280 billion to 300 billion dollars to achieve the target of 500 GW of renewable energy capacity by 2030. Apart from this, if we consider the cost of improvement in the transport and distribution sector, the number of investments is seen to be very high. But investment in the distribution sector is moving at a very slow pace. In a report presented by the Power Finance Corporation last year, the average cost of power supply in the country in the financial year 2020-21 was Rs 6.19 per kilowatt-hour (kWh). While the average income per KWH was Rs 5.78 and after all subsidies the income figure was Rs 5.62. Thus, there was a loss of 57 paisa per KWH in providing electricity.

Due to this, the debt burden of discoms saw a continuous increase. According to the statistics of the procurement portal, the outstanding amount owed by the discoms to the power generation companies at the end of May 2023 was Rs 92,700 crore. Apart from this, power theft and overall commercial and technical losses are different. Thus there are many risks involved in investing in the power sector.

Many state governments in the country have refrained from making fresh investments in state-owned discoms. Considering the weak position of discoms, the central government is making strong efforts to bring in private companies in the power distribution sector. The country's power generating companies are keen to sign power purchase agreements with discoms only when they are assured of timely payment from the discoms. Poor enforcement of legal contracts discourages power producers from entering into power purchase agreements. It is not uncommon for power generation companies' investments to be put at risk in the event of non-compliance with power purchase agreements. It will not be surprising if political parties' election promises of providing free electricity put a brake on the entry of private companies into the power distribution sector. The attraction of private capital is increasing in the power generation sector, especially in renewable energy, but there is a dearth of new capital in the construction of transport and distribution, especially distribution infrastructure.

Electricity consumption is increasing with the economic development of the country. An increase in power consumption can be said to mean an increase in the financial burden on the discoms. Because discoms do not get timely payments from various consumers due to political interference. Not only do discoms not make timely payments to power producers, power producers refrain from making new investments to increase power generation, but discoms are reluctant to supply excess power. If discoms do not get power, it will not directly affect industrial operations. In such a situation, there is an urgent need for strong and drastic reforms in the power sector, especially in the power distribution sector.