Free Electricity: The Pot and the Kettle
Yes, the kettle is definitely black, very black.
 
But, truth be told, the pot is not much better.
 
You may have read my recent article about Pakistan’s power sector and ‘circular debt’ .
 
A reader (PP Godbole) made me aware that India’s power sector is in a similar mess, though perhaps not as badly off. I did a bit of research, took the help of my IIT classmate (Dinesh Jain) and found some depressing stuff.
 
To set the background...
 
The main players in India’s power sector are much the same as those elsewhere – power producers (PPs), transmission companies (TransCos), distribution companies (DisComs), consumers and government (state and Central).
 
Let us focus on the Discoms.
 
What would you call a borrower, or in this case a group of borrowers, who have these numbers on their combined balance sheet?
 
- Net worth – negative Rs44,160 crore
- Annual loss – Rs88,000 crore (2020-2021), reduced to Rs50,281 crore by the Union government grant
- Receivables (from consumers) – 161 days (previous year 140 days)
- Payables (to PPs) – 176 days (previous year 164 days)
 
I can think of only one word for this group – bankrupt.
 
Fortunately, the PP group is doing better. Out of 23 power producers, 16 actually make profits! As a group, PPs made a profit of Rs2,700 crore in FY20-21.
 
The PP group also has a positive net worth – Rs1,15,086 crore.
 
Of course, PPs have their own problems, too. Thermal power plants have a utilisation factor of 60%, much lower than the international norms of 80%-85%. Under utilised plants produce more costly electricity.
 
A huge sum (payables for DisComs) is owed to the PPs which strains their cash-flows. Consequently, they have to scrounge on coal purchases, delaying purchases (leading to low stocks of coal) and not paying Coal India on time (Rs12,000 crore is overdue).
 
Coming back to the DisComs... how do they stay in business?
 
The obvious answer is the right answer – subsidies.
 
But the subsidies are not quite enough, as these numbers will show.
 
The average cost of supplying electricity is Rs6.19 per unit.
 
The average revenue (including state government subsidy) is Rs5.49 per unit.
 
Loss is Rs0.70 per unit, reduced to Rs0.57 by grants under the UDAY scheme of the Union government.
 
Evidently, the states are not able to give enough subsidies to DisComs to keep them in the black. In fact, in 2020-2021, DisComs claimed subsidies of Rs1,32,416 crore (18.53% of revenues) from state governments, but got only 84.54% of this amount.
 
Besides the subsidies to DisComs, state governments also dole out various other subsidies to consumers, notably free electricity to farmers, which accounts for 90% of the tariff subsidy bill.
 
Other subsidies abound. Delhi government gives free electricity up to 200 units a month and subsidises the next 200 units. Other states have subsidy schemes for consumers, too. These are notoriously difficult to control, and subsidies are often leaked or misused.
 
All these hand-outs cost a good bit of money which state governments are stretched to find. Despite this, more state governments are giving free electricity to consumers. 
 
They try to recover some of the subsidy costs by playing Robin Hood – take from the rich to give to the poor. Those who are not entitled to subsidies are billed at higher rates, upwards of Rs8.50 per unit. Commerce and industry pay high rates as well, up to Rs14 per unit in some cases.
 
Unfair?
 
Maybe, but I don’t want to get into the debate regarding subsidies – whether they are good or bad. 
 
It is easy enough to say that subsidies are freebies (‘revdi’ in common parlance) that must be abolished.
 
Remember the colour TVs given away in Tamil Nadu (TN)? A luxury item given for free, just to attract voters?
 
Well, maybe not. A study has shown that in TN villages, cable TV, viewed on colour TV sets, has actually had a hugely positive impact on the development of women – less domestic violence, less preference for a son, lower fertility, and higher autonomy for women in the household.
 
In any case, lamenting subsidies is totally pointless. Subsidies will not stop.
 
Heck, the Union government is giving people free food, free houses, free toilets and free healthcare. What difference does free electricity make, anyway? Besides, electricity is a basic need today and people from all strata of society need to get it, even if some people cannot pay.
 
Then what is the way, if any, to resolve the mess that the power sector in general, and DisComs in particular, have landed in?
 
Let me suggest a way.
 
Theft and losses account for 27% of all electricity produced, according to the central electricity authority.
 
 
Line losses are low in the main transmission system which is largely under the control of the Union government. Yes, there are losses in the sub-transmission systems—the parts within the states—but these, too, are gradually improving.
 
But what about theft?
 
One estimate pegs the losses due to theft at US$16bn (billion) a year – Rs132,000 crore (exactly the amount of subsidies the DisComs asked for in 2020-2021). Saving just half of this amount would yank the DisComs back into the black.
 
Not possible, you say? Let me delve into this a little bit.
 
Compared to other forms of corruption or plain theft—‘Jamtara’ springs to mind—electricity theft is easy to spot. The usual methods – bypassing or reversing meters, direct hooking onto power lines, and tampering with the meter’s mechanism – can be identified and stopped.
 
Besides, the Electricity Act already has provisions for fines and jail sentences for electricity theft.
 
Perhaps you think enforcement is not feasible because people will protest. Well, bulldozers are tearing down houses in many places—J&K, UP, even Delhi—thereby recovering government land which had been encroached upon years, even decades, ago.
 
Think about it.
 
People are losing their homes, but protests are to no avail. In comparison, being stopped from stealing a few thousand rupees of electricity a month will not be such a big deal, will it? Especially, when you risk going to jail?
 
I leave it to you to mull over it.
 
(Deserting engineering after a year in a factory, Amitabha Banerjee did an MBA in the US and returned to India. Choosing work-to-live over live-to-work, he joined banking and worked for various banks in India and the Middle East. Post-retirement, he returned to his hometown Kolkata and is now spending his golden years travelling the world, playing bridge, befriending Netflix & Prime Video and writing in his wife’s travel blog.)
Comments
C V MANIAN
2 years ago
Serious attempts to prevent/reduce power thefts must be made. Where there is will, there is a way.
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