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Proposed scheme will help discoms clear part of their debt. But stress in power sector calls for structural overhaul

Last week, the Union power ministry proposed a new scheme to help cash strapped power distribution companies (discoms) clear their mounting obligations. In 2020, finance minister Nirmala Sitharaman had announced a Rs 90,000-crore liquidity infusion scheme (this was later raised to Rs 1.2 lakh crore) for discoms to settle their debt. Similar schemes in the past have failed to address the structural issues that plague the power sector, the distribution segment in particular. Rolling out another scheme is unlikely to help.

Discom dues are currently estimated to be around Rs 1 lakh crore. Six states — Rajasthan, Uttar Pradesh, Maharashtra, Andhra Pradesh, Telangana and Tamil Nadu — account for a significant share of the dues. Under the new proposed scheme, discoms will be allowed to pay off their obligations over 48 installments. The proposal also involves freezing the principal and the late payment surcharge on the date of the notification of the scheme. States such as Tamil Nadu and Maharashtra are expected to benefit the most from this restructuring. Considering that discom payments have on average been delayed by 4-6 months across 15 states as per CRISIL, these payments would offer some relief for the generating companies.

The financial position of discoms continues to be dragged down by a combination of inadequate and irregular tariff revisions, delayed subsidy payments by state governments, inadequate reduction in aggregate technical and commercial losses (a combination of technical losses, inefficiency in billing and power theft), and rising power costs. Successful attempts over the years to tackle these issues have failed to bring about a turnaround in the financial and operational position of discoms. With each passing year, the funds required to plug the gaps are only increasing. But, with the pandemic stretching government finances — both the Center and the states have witnessed a steep rise in their debt levels — continuing financial support to discoms will become fiscally challenging. The reluctance to raise tariffs or bring down AT&C losses signals a lack of resolve at the state level.

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