The new RRRD scheme introduced to improve the discom sector seems to be yet another scheme in the long list of reforms that has failed to take in account the ground reality.
In June 2021, the ‘reforms-based and results-linked, revamped distribution sector’ (RRRD) scheme was approved by the government for revival of distribution companies’ (discoms) finances. The scheme seeks to improve the operational efficiencies and financial sustainability of all discoms (excluding private sector discoms) through conditional financial assistance for strengthening of supply infrastructure. Several financial criteria and basic minimum benchmarks provide the framework that will qualify discoms for assistance. According to the government, implementation of the scheme will be based on the action plan worked out for each state rather than a “one-size-fits-all” approach.
The scheme has an outlay of over INR 3.03 trillion with an estimated gross budgetary support (GBS) of over INR 976 billion from the central government over a period of five years from FY 2021–22 to FY 2025–26. The ongoing projects under Integrated Power Development Scheme (IPDS), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Prime Minister’s Development Package (PMDP-2015) for the union territories of Jammu & Kashmir (J&K) and Ladakh and Pradhan Mantri Kisan Urja Suraksha Evam Utthaan Mahabhiyan (PM-KUSUM) Scheme would be subsumed into this umbrella programme. Rural Energy Corporation (REC) and Power Finance Corporation (PFC) have been nominated as nodal agencies for facilitating implementation of the scheme. Objectives of the scheme are:
Under the scheme, eligible discoms would be provided financial support for upgradation of the distribution infrastructure and smart metering systems for the network as well as prepaid smart metering systems for consumers. The funding for works other than prepaid smart metering and system metering would be contingent upon discoms meeting the criteria and achieving at least 60 percent marks on the result evaluation matrix formulated based on action plans for loss reduction and work plans of discoms agreed upon by the centre.
The scheme seeks to improve the operational efficiencies and financial sustainability of all discoms through conditional financial assistance for strengthening of supply infrastructure. Several financial criteria and basic minimum benchmarks provide the framework that will qualify discoms for assistance.
The scheme relies heavily on technology to address financial problems of discoms. Implementation of prepaid smart metering will use public-private-partnerships (PPP) mode. Artificial intelligence (AI) will be leveraged to analyse data generated through IT/OT (information technology/operational technology) devices including system meters and prepaid smart meters to prepare system generated energy accounting reports every month. This is expected to enable discoms to take informed decisions on loss reduction, demand forecasting, time of day (ToD) tariff, renewable energy (RE) integration, and for other predictive analysis. As part of system strengthening, supervisory control and data acquisition (SCADA) would be set up in all urban areas and distribution management systems in urban centres. The scheme will focus on improving electricity supply for the farmers through separation of agriculture feeders and for providing daytime electricity to them by convergence with the PM-KUSUM scheme for solarisation of agriculture feeders.
RRRD is the latest amongst a long list of programmes launched for financial revival of discoms over several decades. Concern over SEB (State Electricity Boards now called discoms) finances started with the fourth five-year plan (1969-74) that called for interventions to limit losses. Since then, every plan document discussed the issue of deteriorating SEB finances. A series of SEB reconstruction and revival plans were implemented by various governments but almost all failed. The recent bailout packages from the union government, FRP (financial restructuring plan) in 2013 and UDAY I & II (Ujawal Discom Assurance Yojana) in 2017 and 2020 also failed to bail out discoms. Under UDAY, some progress was reported on parameters such as AT&C losses and revenue gap but broader structural issues that undermined commercial viability of discoms remained unchallenged. As pointed out by the Reserve Bank of India (RBI), transfer of discom liabilities to the state budget under UDAY contributed to fiscal slippages that undermined both distribution reforms and energy access policies in the long term.
The likelihood of RRRD succeeding where others failed is low primarily because the scheme is very similar to the earlier schemes that offered financial incentives to discoms that made efficiency gains. Though designers of the scheme have stated that it shuns the one-size-fits-all-approach, it does use the same parameters to measure progress of all discoms. Unfortunately, all discoms are not the same. Discoms that are rated as good performers based on financial and technical efficiency parameters such as those chosen for RRRD have more commercial and industrial consumers than agricultural and household consumers. Gujarat discoms are rated with A+ indicating very high operational and performance capability and the Tamil Nadu discom is rated with C indicating very low operational and performance capability. But this does not capture differences in demand profile. Domestic load is less than 15 percent in Gujarat compared to nearly 40 percent in Tamil Nadu. Industrial load that carries the highest tariff is nearly 60 percent in Gujarat and just 15 percent in Bihar whose discoms are rated with C+, just a notch above C.
With exclusive focus on technical and financial parameters the RRRD does not address consumer concerns such as quality of service. It also does not consider imbalances between discoms such as the burden of renewable energy purchase obligations (RPO) falling heavily on southern discoms with about 50 percent renewable energy generation capacity is concentrated in the region. The provision that installation of smart and pre-paid meters will depend on discom performance may delay the or postpone the installation of this equipment that can substantially improve billing and collection efficiency. Efficiency gains are reported where electricity distribution is handled by private companies under a licence such as in Delhi or under a franchise such as in Odisha and Maharashtra. But these operate primarily in urban areas with substantial state assistance and the possibility of replicating this model in large states with significant rural and agricultural load is limited. There is also the possibility of centrally monitored schemes favouring discoms in states that are ruled by the same party as that in the centre and discrediting discoms that are ruled by regional and other parties.
The likelihood of RRRD succeeding where others failed is low primarily because the scheme is very similar to the earlier schemes that offered financial incentives to discoms that made efficiency gains. Though designers of the scheme have stated that it shuns the one-size-fits-all-approach, it does use the same parameters to measure progress of all discoms.
A recent report from Niti Aayog on distribution reforms recommends creation of regional electricity regulatory commissions with participation from the central government above state electricity regulatory authorities to limit political interference on regulatory functions. It is not clear how this additional layer of bureaucracy will address the key issue of political influence on regulatory functions. It is well known that even the party ruling at the centre does not resist the temptation to limit electricity tariff increases when it faces elections at the state level. This is the key issue that undermines all efforts to “reform” discoms. The upside of tariff concessions announced by political parties accrues to the party in the form of electoral gains while the downside is passed on to discoms that grapple with mounting losses and a C rating. Unless this fundamental reality is addressed, reform of discoms may become a routine exercise that no one takes seriously.
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