Can fresh reforms fix power sector debt?

After four failed reform drives, a new plan aims to rescue India’s debt-laden power discoms through privatisation, accountability, long-term financial fixes

- SUDHEER PAL SINGH

For the electricity sector in India, there have been few issues more pressing than the problem of losses at power distribution companies, or discoms, and their huge debt.

The story of a sick and unsustainable power distribution sector is as old and sticky in India as the sector itself. Multilateral banks and investors, who track the sector for its health, say discoms need debt restructuring.

On the face of it, it looks like a rather simple problem. Electricity tariffs area politically sensitive subject, and the desire by successive governments to keep charges low has led toa ballooning of the gap between average cost of supply (ACS) and average revenue realised (ARR) over the years. The consequent losses of discoms have piled up to unsustainable levels, impacting their ability to modernise operations, service debt and cater to consumers meaningfully. In the absence of tough corrective measures, the issue has turned intoa financial mess of gargantuan proportions.

‘As of March 2024, all the discoms put together were sitting on 7.42 trillion of borrowings; around €2.74 trillion of this is unsustainable debt. The discoms’ losses on the supply of power stood at 28,484 crore at the end of 2023-24, with Aggregate Technical and Commercial (AT&C) losses — essentially losses from power theft — as high as 16.37 per cent at the national level, and the ACS-ARR gap at 22 paise per unit.

‘There are three core problems. First, the role and purpose of the electricity regulatory commissions — which were originally envisaged in the Electricity Act, 2003 as ring-fenced independent bodies free to decide on cost-reflective tariffs — are yet to be achieved fully. Second, the role of the state governments in imparting operational autonomy to the discoms has not been realised. Finally, there is still a mindset that electricity is a “social” and not an economic commodity.

The solution