Protect power producers: States must honour PPAs, push discom-reforms

India’s power sector has been plagued by inefficiencies and large financial losses. There are substantial peak demand shortages, discoms are unable to pay their bills to power producers, the distribution network isn’t strong enough to ensure optimal supply of power and theft remains rampant.

With little initiative to cut down on cross-subsidies, industry continues to bear the burden of high cost of power. India is attempting to build solar capacity—the share of renewable generation in 2019-20 was 10%—but that effort, too, is in jeopardy, not the least because governments are reneging on power purchase agreements.

To be sure, the fact that 100% of households have electricity is no mean achievement. But if the sector is to become viable for all stakeholders, and attract investments, it is critical to tackle some of its deep-rooted problems.

Among the objectives laid out in the new draft National Electricity Policy is one to revitalise distribution companies. Despite several attempts to make them viable, discoms remain in poor financial shape; their collective overdues stood at Rs 82,400 crore at the end of March while their collective debt is tipped to cross Rs 6 lakh crore by March 2022. Their financials have not improved despite relief packages over the years, including the latest one for Es 1.25 lakh crore under the Atmanirbhar Bharat package.

Until state governments are penalised for defaulting on payments, it is unlikely the financials of discoms will ever improve.

financial express
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