'Losses Incurred By Power Distribution Companies Will Not Come Down'

States usually cheat on the roadmap and reporting while signing power agreements. There is a huge internal problem of reporting which is deliberately pegged low. The aggregate technical and commercial (ATC) losses are reported to be 25% but in reality they must be around 45%, said Ismail Ali Khan, chairman of Telangana State Electricity Regulatory Commission, talking about the recent Jharkhand default.

With the recent news of states sprouting to default on the UDAY scheme, the viability of the scheme has come under question.

UDAY is not a new scheme and it's mere temporary relief for the states, said Khan, who is a former member of the Planning Commission.

He said the scheme is an extension of FRP introduced by the government with the major difference of the short term loans percentage, which would be taken over by the states from 50% to 75% in UDAY.

"There is no point of such scheme if the average cost of procurement keeps increasing every year by 5-6% in comparison to the tariff which is not changing on the same pace. In this government's tenure only the average cost of coal has risen. UDAY or no UDAY, the losses incurred by the distribution companies will not come down. The commercial viability of these DISCOMS needs to be ensured on priority," he said.

However he confirms that the tariff revision is there and mandatory, but the government cannot afford to change it due to possible public anger and political obligations.

"In Telengana, the highest slab is 50 paise. If you are crossing 800 units per month consumption, then your tariff is Rs 9. Further it cannot be increased; it's beyond the absorption capacity of the people. So tariff increase is there but not as in pace but the cost. The gap will keep increasing and in the next 10 years another UDAY will come," Khan said.

Under UDAY there is a provision that the government will supply low cost power, but practically that is also not happening.

"We do not have the margins for maintaining the viability. In US or UK, the fuel cost is very low and the procurement cost in bulk for them is just 5 cents with tariff of 10 cent. This leaves them a margin of 6 cents. Whereas for us in India, the cost is 7 cents and the tariff is 8-9 cents. Where is the margin? More importantly, where are the government incentives to compensate for those high cost?"

Talking about Jharkhand's default, Khan said, "States usually cheat on the roadmap and reporting while signing the agreement which they pay for later. There is a huge internal problem of reporting which is deliberately pegged low. The ATC losses are reported to be 25% but in reality they must be around 45%."

"Jharkhand in terms of production and supply hasn't improved since, despite of having cheap coal advantage and has not invested much in the distribution system. Comparing the other 2 states that started at similar lines, Chhattisgarh and Uttarakhand have managed to bring improvement in the system. 40% ATC loss is common for Jharkhand," he added.

Khan explained why the tariff doesn't change. "The tariff for most of the states hasn't been revised since 10 years. Up to 100 units, the tariff is kept at Rs 1 and 50 paise, to propagate the agenda of pro poor. It's a myth, people are ready to pay 300 for TV, but not 100 for electricity? So this whole agenda requires political will".

"Similarly, agriculture is either free or highly subsidised. If the states are not able to get return of this major chunk of their revenue, how will they sustain and recover their cost," he said.

When asked about the recent news on a particular village in Tamil Nadu receiving electricity now, post-independence, Khan said that 100 per cent electrification is not just in the hands of government but people as well.

"South electrification was completed in the late 70s itself. I can electrify the village, but not the households. You cannot force people to buy electricity and can't give them for free as well," he said.

Problem with renewable? "Renewable is expensive for any discom to buy and to do the same, they need incentives, otherwise thermal even today is the most feasible option for them", said Khan, citing the instance of Japan's feed in tariff, where the rate of purchase is already guaranteed in contrast to the competitive bidding model India has.

"The average procurement cost on an average is Rs 5 plus for renewable and less than Rs 5 for thermal, based on the location. Why wouldn't we prefer the latter?"

Another major problem with renewable is the limited supply of electricity and hence the battery storage problem which further increases the cost.

"Despite low rate, the supply is not more than 6 hours. With storage to supply for 24 hours, the batteries come at the additional cost which plunges the price to 10 Rupees. The large scale batteries are over the top very expensive with limited life," Khan said.