Explained: The heavy debts of State DISCOMS

A highlight of the recent State elections was the promise of free power. 

Updated - April 10, 2022 11:52 am IST

Published - April 08, 2022 04:25 pm IST

Jumbled-up electric wires in a residential area at Majlis Park in north-west Delhi.

Jumbled-up electric wires in a residential area at Majlis Park in north-west Delhi. | Photo Credit: Sushil Kumar Verma

Parties like the Aam Aadmi Party (AAP), Samajwadi Party (SP), Congress, Dravida Munnetra Kazhagam (DMK), and All India Anna Dravida Munnetra Kazhagham (AIADMK) promised free power to farmers, residential households consuming up to 300 units, small traders, small shop-owners, among others. Power as a poll promise has always attracted the electorate; however, the dues which State governments owe power generating companies (GENCOS) while trying to fulfil these promises is another story.

How much do State distribution companies (DISCOMS) owe generating companies?

In the recently concluded Parliament session, the Centre revealed that state DISCOMS owe over Rs 1,00,987 crores to GENCOs, as of February 28, 2022. As per the list, the States with the highest dues are Maharashtra (Rs 19,282 cr), Tamil Nadu (Rs 19,658 cr), Rajasthan (Rs 10,852 cr), Uttar Pradesh (Rs 9,264 cr) and Telangana (Rs 6,891 cr).

Jammu & Kashmir comes next with Rs 6,864 cr in dues, followed by Punjab (Rs 1,326 cr) and Haryana (Rs 754 cr). The larger States with the least amount of dues pending are Chhattisgarh (Rs 120 cr), Odisha (Rs 250 cr), Gujarat (Rs 338 cr), Kerala (Rs 482 cr) and West Bengal (Rs 536 cr). Among the smaller States, Nagaland has no dues, while Uttarakhand has Rs 6 cr, Goa (Rs 9 cr), Mizoram (Rs 12 cr) and Manipur (Rs 45 cr).

This list only covers the dues owed by these States to Central power generation stations, Independent Power Producers (IPPs) and Renewable Energy (RE), excluding State GENCOS.

Why do states owe such high dues?

The main reasons why DISCOMS fail to pay dues to their respective power generators are:

Tariffs not reflective of costs : Electricity bills are calculated based on the units consumed by the customers and the tarrif slabs which they fall under i.e - (below 100 units, 100-300 units, 300-500 units, commercial etc).

Other components of the bill include - electricity duty, fuel surcharge, power purchase adjustment and surcharge. Electricity duty is the tax levied by state govt on the above mentioned tariff slabs, while fuel surcharge is the additional charge levied on the tariff slabs based on increase in fuel price hike throughout the year.

Power purchase adjustment deals with the cost incurred by the state DISCOMS to procure power from generating sources and supply power to consumers at retail tariffs determined by state Electricity Regulatory Commissions. Most of DISCOMs purchase power from NTPC, other GENCOS via Transmission companies (TRANCOS) and Power Grid Corporation of India Limited (PGCIL) for end consumers. Meanwhile surcharges are additional charges levied on consumers in case of late payments.

These four components listed are controlled by State governments. At times, States may slashes duties, surcharges to offer relief to end consumers. However, as GENCOS, TRANCOS, PGCIL do not slash their rates, state govts have to bear the burden of the additional cost, often leading to debt.

Poor billing and collection efficiencies: Recently, the Maharashtra govt, which owes the highest in dues, threatened to cut power supply to agriculture water pumps to recover dues of Rs 44,000 crore as the state DISCOM — Maharashtra State Electricity Distribution Company Limited (MSEDCL) — was unable to recover the amount. However, the government soon halted the move for three months after political intervention and farmers' protests. In Maharashtra itself, 64.52 lakh consumers are yet to pay dues to the state DISCOM.

Non-payment of electricity dues by State Government Departments: DISCOMS' biggest defaulters are often the State governments themselves. For example, Uttar Pradesh Power Corporation Limited (UPPCL) was recently threatened by India's largest power supplier, NTPC, with snapping of supply if it failed to pay dues of Rs 2,873 crores.

Similarly, in Andhra Pradesh, government departments like Panchayat Raj, Rural Development, Water Resources and Municipal Administration and Urban Development owed over Rs Rs 10,800.47 crore as of May 31, 2021. Most of these expenses include unpaid bills from government offices, ministers' residences, poor/outdated electricity meters.

Non-payment/short payment by the State Government against the subsidies announced by them: Prior to elections in Uttar Pradesh, Uttarakhand, Punjab, Goa and Manipur, AAP had announced that if it was voted to power, it will deliver 300 units free electricity, waive old electricity bills, provide free electricity for farmers, and 24x7 electricity. SP chief Akhilesh Yadav, too, vowed the same in Uttar Pradesh.

While AAP has been slammed by several Opposition parties for such ‘power promises’, Punjab, where it has stormed to power, already offers the highest subsidies. With almost Rs 9,000 crores in power subsidies to farmers, it faces heavy dues to generating companies — Rs 1326 crores.

In Tamil Nadu, which also offers large power subsidies, the State DISCOM - Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) had the highest borrowings of Rs 1,24,423 crore in 2020. This was an increase of Rs 10,975 crores in comparison to 2019. Both AIADMK and DMK who have been in power in the state have promised free solar power stoves, slash petrol and diesel rates, farm loan waivers which have burdened the state DISCOMs.

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