Power sector's hope for improvement: Examining progress with experts

The power sector is witnessing a surge in stocks, with companies like HPL Electric, NTPC, REC, and PFC leading the way. This upward trend is attributed to reports of state governments awarding substantial contracts for the installation of smart meters. The initiative is part of the revamped Distribution Sector Scheme (RDSS) introduced by the central government, which provides grants to states that adopt smart meter technology.

The deployment of smart meters aims to enable real-time remote monitoring of power consumption, which is expected to improve revenue collection for power distribution companies (discoms). Additionally, the government has taken steps to enforce the Late Payment Surcharge (LPS) on discoms, contributing to the rise in finance stocks.

Discoms that delay power purchases are now subject to surcharges. The Fuel and Power Purchase Surcharge Scheme (FPPAS) has been designed to adjust charges based on changes in costs regularly. This multi-pronged approach is hoped to bring about positive changes in the power sector, reducing losses for discoms and thereby improving the financial health of both power generators and distributors.

Vivek Kumar Dewangan, CMD of REC, expressed optimism about the impact of the revamped distribution sector scheme, stating that since its launch in 2021, significant progress has been observed. State governments have started pre-paying discoms subsidies quarterly to motivate them to reduce Aggregate Technical and Commercial (AT&C) losses. The efforts have led to a 5 percent reduction in AT&C losses in just one year, dropping from 22 percent to 17 percent. He believes that the financial turnaround of discoms is now in motion.

Sabyasachi Majumdar, Senior VP of ICRA Ratings, acknowledged the substantial reduction in AT&C losses as a positive development that has improved the overall liquidity position in the power sector. However, he cautioned that sustainability remains a concern.

"The overall Transmission and Distribution (T&D) losses still hover around 17-18 percent, and further reductions are necessary to achieve the government's target of 12 to 15 percent AT&C losses on a consistent basis. While progress has been made, there is still some way to go," he said.