Some power stocks surge, but is the power sector on the road to recovery?
What’s going right is that the power sector has been seeing some slow but incremental reforms. So, is the power sector finally sustainable on the path of reform and financial recovery? This is what these three experts have to say.
Some power stocks have been powering up. HPL Electric and Genus Power have doubled in the past two months; REC and PFC have doubled in the past 12 months. So, what’s going right for this sector?
What’s going right is that the sector has been seeing some slow but incremental reforms. Here’s the list:
1. RDDS or the Revamped Distribution Sector Scheme. Under this, the Centre has been giving grants to states for installing smart meters, which can be remotely read, and which are supposed to help collections and hence reduction of transmission losses.
2. LPS or Late Payment Surcharge rules that is forcing discoms to pay power generators promptly or face back-breaking penalties on dues and benign denied access to power exchanges.
3. FPPAS or the Fuel and Power Procurement Adjustment Surcharge, is an amount electricity regulators ought to add to power tariffs, with a lag so as to pass on higher power costs.
What is Going Right:
1. AT&C losses are sharply lower. AT&C (i.e. Aggregate technical & commercial) losses can happen due to power theft or lack of metering or collection. And these losses have fallen by 5 percentage points in the past couple of years. See table below:
AT&C losses decline
| States | FY20 (%) | FY22 (%) |
| MP | 30.4 | 22.6 |
| Bihar | 39.9 | 32.4 |
| UP | 29.6 | 30 |
| Rajasthan | 29.9 | 17.5 |
| Maharashtra | 18.6 | 14.4 |
| West Bengal | 17.8 | 15.1 |
| Haryana | 18.3 | 13.8 |
| Punjab | 14.4 | 11.7 |
| All INDIA | 21.5 | 16.5 |
#AT&C=Aggregate technical and commercial losses
Harshvardhan Dole, power analyst at IIFL points out that discoms were billing & collecting only from 84-85 percent of consumers. Due to the sheer vast size of the number of consumers, discoms often bill customers approximately based on previous consumption patterns. But with smart metering, discoms know exactly how much is due from each consumer and they can prioritise and use their scarce resources to collect from higher consumers, as also disconnect repeat offenders.
REC Chairman and Managing Director, Vivek Kumar Dewangan told CNBC-TV18 that in addition to smart meters, discoms are now installing prepaid meters: The numbers are modest. Only 17.5 lakh prepaid meters have been installed, though orders have been placed for 2.5 crore prepaid meters. The target is to install 20 crore such meters.
But he says these prepaid meters are being installed in government departments like irrigation, municipalities and panchayats, which are among the bigger defaulters. Now with prepaid meters here, these departments are paying up. Dues from such government departments have fallen from Rs 1.3 trillion to Rs 64,000 crore, he said.
2. States have become more regular in coughing up their subsidy payments to discoms. Sabyasachi Mazumdar of ICRA says that in FY22, state governments paind up 109 percent of subsidies due to them, indicating they cleared some backlog too.
3. The late payment surcharge is also working. Dewangan pointed out. A 12 percent surcharge is a lot of money and discoms are trying not to increase incremental due so that they save some Rs16,500 crore by simply avoiding LPS. This means generating and transmission companies are at least not incurring incremental high receivables.
4. The FPPAS surcharge or the practice of increasing tariffs in line with incremental costs is being followed a little more rigorously. Last year Tamil Nadu, a state guilty of 1.5 trillion rupees of accumulated debt, raised tariffs by 38 percent. State discoms going to their electricity regulators (the SERCs) with higher tariff requests is becoming a regular feature, says Mazumdar of ICRA.
So, is the power sector finally sustainable on the path of reform and financial recovery? “Not really” appears to be the answer from these three experts.
What's Not Going Right:
1. SERCs are still not allowing all or even a large part of the tariff increases sought by discoms: See the table here put out by ICRA.
Tariff hike approved less than hikes sought in FY24
| States | % hike approved | % hike sought |
| Andhra | 0 | 0.2 |
| Assam | -1.2 | 3.1 |
| Bihar | 24 | 53.6 |
| Goa | 5.2 | 6 |
| Himachal Pradesh | 3.8 | 15.9 |
| Karnataka | 8.3 | 17.5 |
| MP | 1.7 | 3.2 |
| Maharashtra | 2.9 | 15.6 |
| Punjab | 9.4 | 36.6 |
| UP | 0 | 9.1 |
| Uttarakhand | 9.6 | 17 |
2. With tariffs not rising to keep pace with costs, the accumulated losses of discoms are still rising each year albeit at a slower pace. But it is still mounting dues. Losses were rising to the tune of 50,000 crore a year, says Mazumdar. Tariff hikes reduced them maybe by Rs 20,000 crore. But for the remaining 30,000 crore more tariff hikes are needed first to meet current rising costs and then to reduce backlog.
Aggregate accumulated discom dues
| Year | (Rs trillion) |
| 2017 | 4.2 |
| 2018 | 4.5 |
| 2019 | 4.7 |
| 2020 | 4.8 |
| 2021 | 5.7 |
| 2022 | 6 |
| 2023 | 6.3 |
3. The late payment surcharge may have moved discoms to pay gencos on time, but that’s only because they are taking more loans from REC and PFC. This means even as penalties fall, state discom’s debt is rising. The following tables will show the scary debt numbers state-wise.
Regulatory assets (previously incurred losses)
| States | Rs Crore |
| Tamil Nadu | 89,400 |
| Rajasthan | 49,300 |
| Delhi | 26,200 |
| Maharashtra | 21,200 |
| West Bengal | 18,300 |
Accumulated discom dues
| States | Rs Crore |
| Tamil Nadu | 1,53,900 |
| UP | 82,200 |
| Rajasthan | 65,900 |
| MP | 52,500 |
| Maharashtra | 44,000 |
| Andhra Pradesh | 36,400 |
| Karnataka | 29,600 |
| Telangana | 29,200 |
| Kerala | 18,700 |
| Jharkhand | 16,700 |
| Punjab | 16,600 |
| West Bengal | 16,600 |
| Bihar | 11,900 |
4. Smart metering is progressing at snail’s pace. See the table below:
Smart meter installation
| States | Installed (%) |
| Bihar | 9 |
| UP | 4 |
| Haryana | 8 |
| Assam | 9 |
| Rajasthan | 4 |
| Punjab | 4 |
| MP | 3 |
In short, power sector reforms are still very much a work in progress.
This may explain why although HPL Electric and Genus Power shares may be rising because of smart meter orders, shares of companies owning discoms or generating companies – like Tats Power and Torrent Power – are not surging much.
Every ten years, hopes rise that reforms may save the frail health of India’s power sector: The electricity Act in 2003, the UDAY reforms in 2014 and the RDSS along with LPS schemes now in 2023. Each time the sector slips back.
Now, elections in every state are witnessing more promises of free power. It’s tough to believe the health of power gencos and discoms will improve in the face of such poll promises, bumbling bureaucracies and the genuine hardship of the consumer at the bottom of the pyramid.
(Watch the attached video for more details)
(Edited by : Sangam Singh)
First Published: Jul 30, 2023 9:08 PM IST
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