Further losses by electricity distribution firms in Uttar Pradesh have raised doubts over the central government’s ambitious Ujwal Discom Assurance Yojana project, which was set up to make the power sector financially viable.
Power Minister Raj Kumar Singh said in June that nationwide losses had narrowed to Rs173.52 billion (US$2.34 billion) in 2017-18, from Rs510.96 billion (US$6.89 billion) in the previous financial year.
But that isn’t the story in Uttar Pradesh, which continues to fail on all operational and financial benchmarks. In fact, the state’s four major distribution companies are rated among the eight worst in the entire country by the Ministry of Power in its rankings for 2016-17.
Three Uttar Pradesh companies suffered aggregate technical and commercial (distribution) losses of 52%, 51% and 43% respectively in 2016-17, the highest in India; the target under the UDAY project was a 15% deficit. In contrast, distribution firms in Gujarat posted losses of 9-20% after setting up dedicated police stations to curb power theft, improving the collection of bills and reducing overheads.
In Uttar Pradesh a whopping 38% of the electricity supply is siphoned off by thieves and freeloaders, up from 27.6% a year ago and 25.7% in the 2016 financial year. The state’s utilities have earned a score of only 20/100 and a C grade rating due to their hefty distribution losses, high procurement costs and negative net worth, among other issues.
The other four states where utilities attracted C ratings — Manipur, Tripura, Meghalaya and Jharkhand — are all poorly-developed and battling insurgencies. Four of the five distribution firms in India that landed A+ grades are in Gujarat, and they have regularly topped the list since the integrated ratings system started six years ago.
Financial losses by Uttar Pradesh’s power distribution utilities have risen almost 1,000-fold in the past 16 years, from $10.6 million in 2000-01 to $9.8 billion in 2016-17, state Power Minister Srikant Sharma told the Legislative Assembly earlier this year.
Cash shortfalls halt grid expansion
They shot up during the Samajwadi Party government led by Akhilesh Yadav, reaching a record $2.5 billion in 2013-14. After falling to $120 million in 2015-16, the losses again rose to $900 million in 2016-17, ahead of the elections. Due to the mounting deficit, cash-strapped distributors are unable to expand electricity access, leaving almost 12 million households without power as of September this year.
“With expanding electrification, the subsidy burden on the government will only increase, which will further dent the discoms (distribution companies),” a senior government official noted.
Backtracking on its reform agenda, the Uttar Pradesh government has dropped plans to adopt a franchise model for the privatization of electricity distribution in the state’s five cities. Tenders had already been invited from private bidders for electricity billing, meter installation and reading, revenue collection and other services, with the intention of improving efficiency and reducing pilferage levels.
Ajay Singh Bisht’s government scrapped the plan after strong opposition from employees at power companies. It has also failed to deliver on promises to establish dedicated police stations to curb power theft and to use the stringent National Security Act against power “mafias.” No police stations have opened and not a single case has been registered under the security act.
Power supplies to rural households and farms are the biggest sources of losses in revenue collection. Rural consumers account for half the total residential consumption of power, but no more than 25% of rural households and 8% of farmers using agriculture pumps have a meter installed; in comparison, 85% of urban households do have meters.
Revenues have also been eroded by populist measures by successive ruling parties for political gain, such as providing free electricity to the poor, and lowering residential electricity tariffs, according to a study by Global Subsidy Initiative, an arm of Canadian-based think-tank the International Institute of Sustainable Development. Other reasons include technical losses, power theft and a failure to collect payments.
Each government offered subsidies and delayed reforms to appease voters. The Centre for Policy Research, a Delhi-based think-tank, study stated: “In the year 2000, UPPCL (Uttar Pradesh Power Corporation Limited) had no debt on its books, by the then-ruling Bharatiya Janata Party government under chief minister Rajnath Singh, now the country’s home minister, who had refused to hike tariffs in the run-up to the 2002 elections, thus creating a precedent for other political parties to imitate.”
Populist policies erode revenues
The Samajwadi Party bypassed the power regulator, Uttar Pradesh Electricity Regulatory Commission, so it could delay tariff hikes for powerloom weavers. Similarly, the Bhartiya Janta Party’s government in Uttar Pradesh hiked the tariff for agricultural and domestic consumers by 12%, but exempted industrial consumers to attract more investment to the state.
Srikant Sharma, Uttar Pradesh’s Minister for Power, blames his predecessors for eroding the viability of distribution companies.
“The evaluation period for the Centre’s (central government’s) rating was 2016-17, when the Samajwadi Party government ruled the state. Previous governments have ruined the discoms,” he told Asia Times. “We are now working hard to streamline the collections and have cut down the procurement cost substantially. Since joining the UDAY in March 2017, our discoms have saved around $1 billion.”
Asked about payment defaulters, Sharma said: “We treat every defaulter equally. Supply is being discontinued for consumers with dues above Rs50,000. We will soon set up dedicated police stations across 75 districts to curb power theft, just like Gujarat.”
Sharma also disputed reports that 11.8 million homes were without power, saying that more than 5.8 million homes had been electrified and the rest would be connected by the end of the year. He pledged to install smart meters in cities and pre-paid meters in rural areas free of cost by 2021-22 to address billing discrepancies and aid recoveries.
The minister admitted that internal corruption had an impact on the distribution companies but insisted he was addressing the issue by digitizing the entire system. He will introduce an app-based payment-cum-complaint redress system.
“The app will minimize the citizens-employees’ interaction, which often leads to malpractices,” said Sharma.
However, he refused to comment when asked about the government’s U-turn on inviting private players in the distribution sector, after it encountered stiff opposition from public employees.