Cash-strapped power distribution companies need radical intervention, not another financial aid package

At the end of March, there was a sharp decline in the dues owed by power distribution companies, discoms, to power generating companies. Normally, a decline in dues is a healthy sign — a sign that the financial position of discoms has turned for the better. But it would be a mistake to construe this as such.

Discoms have paid off their dues in part by drawing down a liquidity facility arranged by the Centre last year. This rescue package was arranged to prevent the entire power sector chain from suffering because of the discoms’ inability to meet their obligations.

But, such deterioration in finances, or the Centre’s intervention, is not an unusual occurrence. The Centre has routinely stepped in to aid discoms and tackle the problems plaguing the distribution segment. Unfortunately, though, while the sums involved have risen, the end result of such interventions has been along predictable lines — cash-strapped discoms looking for another rescue package.

In the initial years after the introduction of UDAY — yet another central government attempt to turn around discoms — some states did, in fact, witness an improvement in their financial and operational indicators. But it wasn’t sustained. There has been a sharp deterioration in several parameters.

Indian Express
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