QUESTION : Discuss the problems faced by the power sector in India. Suggest some measures to tackle these problems.
INDIA’S DISCOM STRESS IS MORE THAN THE SUM OF ITS PAST
Power Distribution Companies in India
WHY IN NEWS ?
The Indian government responded to COVID-19’s economic shock with a stimulus package of ₹20-lakh crore, out of which ₹90,000 crore was earmarked for DisComs (later upgraded to ₹1,25,000 crore).
DisComs are the utilities that typically buy power from generators and retail these to consumers.
FINANCIAL ISSUES WITH DISCOMS :
- Not Exactly a Stimulus: While government’s package was called a stimulus, it is really a loan, meant to be used by DisComs to pay off generators. Stimulus loans are near market term and not soft loans.
- Threat from Renewable Energy: Increasing competition from Solar Powers whose tariff has come down to Rs 2.90 per unit (as compared to Rs 6 per unit average cost of electricity supply for distribution utilities) combined with existing long-term Power Purchase Agreements (PPAs) with mainly coal-based thermal power generating projects has led to financial rigidity & therefore financial loss for DisComs.
- Impact of COVID-19: The pandemic has completely shattered incoming cash flows to utilities. The lockdown disproportionately impacted revenues from commercial and industrial segments. But a large fraction of DisCom cost structures are locked in through PPAs that obligate capital cost payments.
- Underestimation of dues: The government’s PRAAPTI (or Payment Ratification And Analysis in Power procurement for bringing Transparency in Invoicing of generators) portal shows that DisCom dues to generators are in range of one lakh crore rupees. The portal is a voluntary compilation of dues, and is not comprehensive.
- Rise in Informal loans: Over the years, DisComs have delayed their payments upstream (not just to generators but others as well) — in essence, treating payables like an informal loan.
- The gap between the cost of electricity bought (average cost of supply) and supplied (average revenue realized) for discoms is still substantial in most states and ranges from ₹2.13 per unit in Andhra Pradesh to ₹0.09 in Chhattisgarh.
WHY DO DISCOMS NOT PAY ON TIME ?
Inefficiency of utilities leads to high losses, called Aggregate Technical and Commercial (AT&C) losses, a term that spans everything from theft to lack of collection from consumers. However, this is an incomplete explanation
CHALLENGES OF PAYABLE TO DISCOMS
DisComs cash flow is disrupted due to dues that are payable to them.These dues are of three types.
- Improper Tariff fixation by regulators: Regulators themselves have failed to fix cost-reflective tariffs thus creating Regulatory Assets,which are to be recovered through future tariff hikes.
- Pending Subsidies: Second, about a seventh of DisCom cost structures is meant to be covered through explicit subsidies by State governments. Cumulative unpaid subsidies, with modest carrying costs, make DisComs poorer by over ₹70,000 crore just over the last 10 years.
- Consumer Bills pending: Third, consumers owed DisComs over ₹1.8 lakh crore in FY 2018-19, booked as trade receivables.
- Coordination Issues: Multiple ministries and agencies are currently involved in managing energy-related issues, presenting challenges of coordination and optimal resource utilisation, hence undermining efforts to increase energy security, as reported by the Kelkar Committee in 2013
- Fuel security concerns .
GOVT. INITIATIVES FOR POWER SECTOR :
- Financial restructuring/ bailout (Ahluwalia Committee 2001)
- Central FRP Scheme 2012
- Operations, infrastructure, and technology improvements (APDRP 2001, R-APDRP/IPDS 2008, DDUGJY & SAUBHAGYA 2014/2017, Smart Grid Pilot project & NSGM 2012-15), and structural reform (Electricity Act 2003).
- UDAY (Ujwal Discom Assurance Yojana) scheme, launched in November 2015, is the latest attempt to address the severe financial stress due to accumulation of debt by the Discoms, with a focus on improving the overall efficiency and financial turnaround
ELECTRICITY GRID ?
- The entire electricity grid consists of hundreds of thousands of miles of high-voltage power lines and millions of miles of low-voltage power lines with distribution transformers that connect thousands of power plants to millions of electricity customers all across the country
WAY AHEAD :
- More Stimulus: There is a need a much larger liquidity infusion so that the entire electricity chain will not collapse
- Improving AT&C losses is important, but will not be sufficient. We need a complete overhaul of the regulation of electricity companies and their deliverables.
- Rationalisation of subsidies whereby doling out of free electricity can be eliminated to those who do not deserve such support.
- Proper Regulation: Regulators must allow cost-covering tariffs.
- Realigning PPAs in the wake of renewable energy:
In the interim, it may be prudent for the discoms to sign only medium-term PPAs, if at all, as most of the power transactions move to the power exchanges.
In the recent past, several initiatives have been taken to address the challenges in the power sector. These include structural changes in the regulatory framework, and the UDAY scheme to address financial issues being faced by companies distributing electricity. But power sector still face loses and old issues. Government must effectively replace and modernise old and inefficient plants and lines to achieve the electricity production and demand target.
QUESTION : Strategic importance of Gilgit-Baltistan region for India. Comment
THE GILGIT-BALTISTAN GAME PLAN
India’s neighbour (Gilgit-Baltistan region)
WHY IN NEWS ?
Reports indicate that the Pakistan government is on the verge of declaring Gilgit-Baltistan a province of Pakistan.
- Technically speaking Gilgit-Baltistan was a part of the State of Jammu and Kashmir (J&K) at the time of Partition.
- British rule: The region because of its strategic importance in the context of the Great Game in Central Asia, had been leased to the British by the Dogra Maharaja.
- Gilgit had its own British-officered local army, the Gilgit Scouts, which switched allegiance to Pakistan within a week of the Maharaja’s accession to India.
- Since independence: From the beginning Gilgit-Baltistan was governed as a separate entity by Pakistan and not as a part of Pakistan occupied Kashmir (PoK).
- Islamabad had hesitated to declare it a province of Pakistan because of its claim that J&K is disputed territory and its future must be decided by a plebiscite among all its inhabitants.
CURRENT STATUS OF GILGIT-BALTISTAN :
o It is an autonomous region now and with this elevation, it will become the 5th province of the country.
- Currently, Pakistan has four provinces namely Balochistan, Khyber Pakhtunkhwa, Punjab, and Sindh.
INDIA’S STAND :
o India has held that the Government of Pakistan or its judiciary has no locus standi on territories illegally and forcibly occupied by it.
o India completely rejects such actions and continued attempts to bring material changes in Pakistan occupied areas of the Indian territory of Jammu and Kashmir.
o While protesting Islamabad’s efforts to bring material change in Pakistan occupied territories, India held that Pakistan should immediately vacate all areas under its illegal occupation.
GEOPOLITICS OF GILGIT-BALTISTAN :
- The revocation of Article 370 by India and the bifurcation of the State into two Union Territories have sent a clear message that the Kashmir dispute is dead For India.
o Pakistan’s move is a clear reaction to the Indian decision.
- Public opinion in Gilgit-Baltistan has long been in favour of full integration into Pakistan as a province as the predominantly Shia and ethnically distinct population of the region has very little in common with PoK.
CHINESE INTEREST :
- The China-Pakistan Economic Corridor (CPEC) runs through Gilgit-Baltistan and China has invested heavily in the region.
o In view of India’s continuing claim to the area, Beijing is interested in delinking Gilgit-Baltistan formally from Kashmir in order to protect its investments.
o China opposes New Delhi’s decision to separate Ladakh from J&K.
Beijing views the Indian move as the first step towards India attempting to enforce its claim on Aksai Chin, currently under Chinese occupation.
STRATEGIC LOCATION :
It is contiguous to Ladakh as well as Xinjiang and could act as a staging post against India if a major India -China conflict erupts in Ladakh.
o There is already substantial Chinese civilian presence in Gilgit-Baltistan related to CPEC projects.
o China is interested in stationing military personnel as well.
India must calibrate its response carefully because merely by turning up the rhetorical heat, it may play into Chinese and Pakistani hands and escalate the situation. Rhetoric must always be determined by a meticulous assessment of capability.