INDIA'S

ELECTRICITY
DISTRIBUTION
COMPANIES
TRENDS & WAY FORWARD
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 INDIA'S
ELECTRICITY
DISTRIBUTION
COMPANIES
TRENDS & WAY FORWARD
 Content

Abbreviations 1

Introduction 4

1. Reforms in the Distribution Sector 6

2. Financial Performance of Discoms 7

3. Reasons behind Poor Performance of Discoms 9

a) High AT&C losses 9

b) Inadequate and Infrequent Tariff Hikes 11

c) Supply of low cost/free electricity to Agricultural consumers 12

d) Poor Power Procurement Planning 13

e) Era of Power Surplus 14

f) Lack of Sound Regulatory Governance 14

4. Past schemes for Discoms 15

a) Accelerated Power Development and Reforms Programme 15

b) Restructured Accelerated Power Development & Reforms Programme 16

c) Financial Restructuring Plan 17

5. Ujwal DISCOM Assurance Yojana (UDAY) 18

6. Recommendations 23
 ABBREVIATION
Accelerated Power Development and Reforms Programme APDRP

Accelerated Power Development Programme APDP

Aggregate Technical & Commercial losses AT&C

Andhra Pradesh Eastern Power Distribution Company Limited APEPDCL

Appellate Tribunal for Electricity APTEL

Average Cost of Supply ACS

Average Cost of Supply- Average Revenue Realized per unit gap ACS- ARR Gap

Average Revenue Realised ARR

Central Electricity Authority CEA

Central Electricity Regulatory Commission CERC

Circuit Kilometres ckt kms

Comptroller and Auditor General CAG

Deen Dayal Upadhyay Gram Jyoti Yojana DDUGJY

Diesel Gensets DG

Direct Benefit Transfer DBT

Distribution Companies Discoms

Eastern Power Distribution Company of Andhra Pradesh Ltd APEPDCL

Electricity Act EA

Electricity Distribution Companies EDC

Electricity Regulatory Commissions ERCs

1 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

Financial Restructuring Plan FRP

Giga Watt GW

Gross Domestic Product GDP

Gross State Domestic Product GSDP

Gross State Value Added GSVA

Integrated Power Development Scheme IPDS

Kilo Watt KW

Kilo Watt-hour Kwh

Mega Watt MW

Million Kilo Watt-hour Mkwh

Million Units MU

Ministry of New & Renewable Energy MNRE

Ministry of Power MoP

Power Finance Corporation PFC

Power Purchase Agreement PPA

Renewable Energy RE

State Electricity Boards SEBs

State Electricity Regulatory Commission SERC

Transmission and Distribution T&D

Ujwal DISCOM Assurance Yojana UDAY

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 2

INTRODUCTION
India's power sector has made rapid strides in all the of their input cost is attributed to power . The high cost
three areas – Generation, Transmission and of electricity is one of the main reasons for Indian
Distribution in the past two and a half decades. From a manufacturers losing out to low cost manufacturing
mere installed capacity of 63.63 GW in 19901, the countries such as China, Vietnam and Indonesia.
2
sector today has an installed capacity of 363.37 GW ,
amounting to a 5.7 times increase. Renewable energy The other factor which has impacted the industries is
sector (wind, solar and small hydro) which hardly had a unreliable power supply. Due to erratic power supply,
presence till the year 2002, today generates 82.59 industries, housing societies, individual homes etc. in
GW of energy. The goal now is to achieve 175 GW of India have turned towards backup power such as DGs.
3
renewable energy installed capacity by 2022 . According to estimates given by CERC, in 2014, DG
sets installed across India had a cumulative capacity
During the period 1990-2018, the length of of 90,000 MW, which is estimated to be increasing by
transmission lines (66 kV and above) increased by 5,000 to 8,000 MW per year. DG sets not only
3.38 times, from 192,288 to 649,833 ckt kms. increases the cost of electricity, but it also causes
Similarly, the per capita electricity consumption has significant damage to environment and health.
also increased from 329 KWh in 1990 to 1,149 KWh in
2017. There has also been an improvement in the peak High AT&C losses, supply of low-cost/ free electricity
shortage – from a peak deficit of around 17 per cent in to agricultural consumers; inadequate and irregular
1989-90, the country had a peak deficit of 0.8 per cent tariff hikes; poor power procurement planning; and
4
in 2018-19 . lack of sound regulatory governance have weakened
the financial health of discoms. To improve the
Despite all these achievements, the Indian power condition of discoms, the government from time to
sector often faces financial troubles due to a weaker time has introduced a series of bailout packages and
d i s t r i b u t i o n s e c t o r. O n t h e g e n e ra t i o n a n d loss reduction programmes. However, this has not
transmission side, the Indian power sector significantly improved their fiscal health.
undoubtedly has shown substantial improvement but
the distribution sector has lagged behind. With the rising debt and losses of discoms, the
Government of India, in November 2015, came out
Discoms of many states are running into losses. As of with a scheme named UDAY for financial turnaround of
March 2016, the total accumulated losses on discoms power distribution companies. UDAY is the third in a
were around Rs 4.13 lakh crore5. With their weak series of bailout packages for discoms, first being
financial condition, discoms are avoiding long term introduced in the year 2001. Though a bailout
PPAs with generation companies, which has resulted package, UDAY has been designed differently from the
the creation of stranded assets in the power generation earlier schemes. In addition to the bailout, the scheme
sector. To worsen the situation, the generation sector is also has provisions for improving operational
at the receiving end as their account receivables from efficiencies and enforcing financial discipline on
the discoms continue to mount, pushing the discoms through alignment with state finances. With
generation assets into distress . the implementation of UDAY, some discoms have
shown improvement.
The financial health of discoms has also impacted the
government's 'Make in India' programme. Discoms A robust power sector is one of the key elements of the
charge heavily to industrial and commercial (I&C) Indian growth story. Therefore, it is imperative to have
users for cross-subsidising residential and agricultural financially sound discoms. Taking this into account,
(R&A) users. Data from economic survey 2015-16 this Report endeavours to outline the key reforms
shows that electricity tariffs are unusually high for the needed to improve the health of discoms. This Report
Indian industry, especially when quality is taken into also focuses on the financial condition of discoms,
account. High power tariffs have adversely impacted seeks reasons behind their poor performance with
the competitiveness of the power sector’s largest analysis of past and current schemes, and lists out
consumer base - the industry, for whom 60 per cent recommendations for reforming the distribution sector.

1. http://www.cea.nic.in/reports/others/planning/pdm/growth_2018.pdf2. http://cea.nic.in/reports/monthly/executivesummary/2019/exe_summary-09.pdf
3. MoEF & CC 4. http://cea.nic.in/reports/monthly/executivesummary/2019/exe_summary-03.pdf 5 PFC, 2015-166.

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 4

 REFORMS IN THE
1
DISTRIBUTION SECTOR
Coinciding with economic liberalisation, reforms in the unbundle the SEBs and to set up ERCs. It also detailed
Indian power sector started in the year 1991 with the out the role for central and state regulatory
opening up of power generation to the private sector. commissions. The role of CERC was to regulate tariff
However, reforms in the distribution sector started with for generating companies owned or controlled by the
the unbundling of SEBs and with the creation of ERCs central government. It also had a role to determine
in the states. tariff and regulate the interstate transmission of
electricity. SERCs role was to monitor and regulate the
Due to continuous losses (around Rs 9,453 crore in working of the state companies, fixing consumer tariff
1996-97)6 and inability to finance future programmes, and approving investments.
it was decided by many states to unbundle their SEBs.
Before the restructuring, SEBs were responsible for The EA, 2003 made provision for the Open Access
generation, transmission and distribution of electricity which gave consumers a non-discriminatory access
within a state. After restructuring, many of the states to use the transmission as well as the distribution
formed separate generation, transmission and network.
distribution companies. The idea behind restructuring
SEBs was to enable competition and look for private Open Access enables the consumers with electricity
sector participation. load above 1 MW to procure electricity directly from
open market. It allows the customers to choose from a
The unbundling of SEBs started with the state of number of competitive power companies, rather than
Odisha in 1996, followed by several other states. The being forced to buy power from the local utility
Odisha SEB was unbundled into four distribution monopoly. The EA also paved the way for the
companies, one transmission and one generation introduction of National Electricity Policy and Plan,
company. In addition to unbundling of SEB, Odisha National Tariff Policy and Rural Electrification Policy.
privatised the generation as well as the distribution
companies and also set up Orissa Regulatory Lately, the central government brought in Electricity
Electricity Commission in 1996. Taking cue from the (Amendment) Act, 2014 (yet to pass in the Parliament)
state of Odisha, the Government of India enacted to further bring reforms in the distribution sector. The
Electricity Regulatory Commissions Act 1998 for Act proposes to segregate distribution network and the
setting up of CERC at the Centre and SERCs in the electricity supply business to promote competition,
states. efficiency in operations and improvement in quality of
supply of electricity. The Act also intends to rationalise
The enactment of the Electricity Regulatory the tariff structure on sound financial principles. As per
Commissions Act 1998 was only a partial step towards a news report, the government now is working on
reforms. The real change in the distribution sector bringing amendment to impose penalties on discoms
came only after the enactment of Electricity Act (EA), for load shedding and making provisions for direct
2003. The EA, 2003 made it mandatory for states to transfer of subsidy to the power consumers7.

6. Indian Budget, 1997-98. 7. https://m.economictimes.com/industry/energy/power/government-may-amend-power-act-to-levy-hefty-penalties-on-discoms/articleshow/62438050.cms

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 6

 FINANCIAL
2 PERFORMANCE
OF DISCOMS

a. Outstanding Debt and Accumulated losses

Poor performance over the years has deteriorated the
financial health of discoms. Up to 2015-16, discoms
had an outstanding debt of Rs 4.22 lakh crore and
accumulated losses of around Rs 4.14 lakh crore (see
Chart 1: Total Outstanding Debt & Accumulated Losses
of Discoms over the years). However, after the
introduction of UDAY scheme, debt and losses of the
state discoms have reduced, as participating states
were supposed to take over 75 per cent of the debt
from discoms (explained in section 5).

Chart 1: Total Outstanding Debt & Accumulated Losses of Discoms over the years

(in Rs lakh crore)

4.04 4.14 4.22
3.65 3.59
3.04 3.06
2.54

2012-13 2013-14 2014-15 2015-16

Accumulated Losses Total Outstanding Loans

Source: PFC

7 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

Majority of the accumulated losses – 92 per cent of Tamil Nadu, Madhya Pradesh, Haryana, J&K,
total – were in the states of Rajasthan, Uttar Pradesh, Telangana, Maharashtra and Andhra Pradesh.

Chart 2: State-wise share in accumulated losses, 2015-16 (in Per cent)

Rajasthan
8%
4% Uttar Pradesh
22% Tamil Nadu
5%
Madhya Pradesh
4%
Haryana
8% Jammu & Kashmir
Telangana
18%
7% Maharashtra
Andhra Pradesh
9%
Other states
15%

Source: PFC

b. ACS-ARR Gap
High gap existed between ACS and ARR before 2016.
For every unit sold in 2015-16, discoms had lost Rs
0.65 (see Chart 3: Gap between ACS and ARR);
however, after the introduction of UDAY, the ACS- ARR
gap has reduced to Rs 0.28/Kwh (up to December
8
2017) . It is to be noted that discoms are heavily
dependent on subsidies from the state governments to
bridge the gap between ACS and ARR. In 2015-16, the
ACS – ARR gap (without subsidy) was Rs 1.20/Kwh; in
the same year, the state discoms received a total
subsidy of Rs 55,283 crore. According to ICRA
e s t i m a t e s , t h e b u rd e n o f s u b s i d y o n s t a t e
governments would increase up to Rs 85,000 crore in
2018-19.

Chart 3: Gap between ACS and ARR (in Rs/Kwh)

5.2 5.2 5.4

5.0
4.6 4.6 4.8
4.4
4.0 4.2
3.6 3.8 4.2
3.3 4.0 4.1
2.9 3.8
3.3
3.0
2.7
1.3 1.3 1.2 1.2
1.0 1.1
0.9
0.8 0.8 0.8
0.6 0.7 0.6 0.7

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16

Gap (without subsidy) Gap (subsidy recd basis)

ACS ARR (without subsidy)
ARR (subsidy recd basis)

Source: PFC

8. UDAY portal

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 8

 REASONS FOR
3 POOR PERFORMANCE
OF DISCOMS

High AT&C losses; supply of low-cost/ free electricity procurement planning; and lack of sound regulatory
to agricultural consumers under state incentives; governance are some of the reasons which have been
inadequate and irregular tariff hikes; poor power attributed to poor health of the discoms.

a. High AT&C losses

Inadequate investment in distribution infrastructure,
poor metering and theft are the reasons behind high
AT&C losses in almost all the states, resulting in
technical and commercial losses. Although, the all
India AT&C losses have reduced over the years, it is
still very high. The AT&C losses in 2016-17 were
around 20 per cent at All India level (see Chart 4: All
India AT&C losses). Some states in India have a higher
AT&C losses which are in the range of 30-50 per cent
(see graph 5: State-wise AT&C losses). Ideally, AT&C
losses should be in the range of 8-10 per cent.

9 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

 Chart 4: All India AT&C losses (in Per cent)

Chart 4: All India AT&C losses (in Per cent)

26.6 26.0 27.0

25.5 25.7
22.6 24.0
21.9

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Present

AT&C losses

Source: PFC & UDAY portal accessed on 13 November, 2019 (present AT&C losses depicts data
of 22 states)

Chart 2: State-wise share in accumulated losses, 2015-16 (in Per cent)

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 10

 Furthermore, India's T&D losses are even higher than (see Chart 6: Comparison of India's T&D losses with
some of the advance countries like China and United other countries).
States, which have T&D losses as low as 6.2 per cent

Chart 6: Comparison of India's T&D losses with other Countries, 2014 (in Per cent)

19.7
16.6

10.2
6.7 6.2 6.2

India Pakistan Sri-lanka European Union United States China

T&D losses (%)

Source: World Energy Council

b. Inadequate and Infrequent Tariff Hikes

Electricity hikes in India have always been guided by a
number of considerations. As a result of this, many
states in India in the past have not raised tariffs or the
tariff raised were inadequate as compared to the cost.
Although, the average cost of supply has increased
over the years (can be seen from Chart 3), but the
increase in tariff has not been able to commensurate
with the increase in the cost of supply. It can be seen
from Table 1 that the states with high accumulated
losses such as Tamil Nadu, Haryana, Rajasthan and
Andhra Pradesh have hardly raised tariffs between
2005 and 2011.

Table 1: Tariff hikes in Different States (in Per cent)

State 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

Tamil Nadu 0 0 0 0 0 9
Haryana 0 0 0 0 0 19
Rajasthan 0 0 0 0 0 0
Andhra Pradesh -3 0 0 0 0 13
Source: AF-MERCADOS EMI

The Shunglu Committee Report on 'Financial position
of Distribution Utilities' in 2011 took note of inadequate
tariff hikes and blamed regulators, utilities and the
state governments for the same. As mentioned in the
Report, regulators blamed the utilities for not filing
their ARRs or tariff proposal in time for their failure to
determine tariffs. Taking note of this, the Report
suggested that 'instead of indefinitely waiting for
auditing accounts, the regulators should undertake
the truing up and tariff fixation exercise timely, based
on the best available data as required by the law'.
It must be noted that tariff hikes alone will not be able to
improve the health of discoms. During the period 2011-
16, average tariff hike in most of the states was more
than 8 per cent (see Table 2), which implies that
without improving the efficiency, tariff hikes will only
be used by discoms to cover their inefficiencies.

11 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

 Table 2: Tariff hikes in different states (in Per cent)

State 2011-12 2012-13 2013-14 2014-15 2015-16 Average hike

Kerala 0 30 7.9 24 3 16
Delhi 22 22 5 8 0 14
Nagaland 34 12 7 0 5 14
Andhra Pradesh 8 18 23 0 5 13
Tamil Nadu 0 37 0 15 0 12
Chhattisgarh 0 18 0 15 14 11
Tripura 0 17 31 0 0 11
Haryana 4 19 13 0 8 10
Meghalaya 0 13 7 15 8 10
Rajasthan 9 8 9 16 0 10
J&K 15 19 8.5 0 0 10
Bihar 19 12 7 0 2.5 9
Uttar Pradesh 0 18 5 11 5.47 9
Odisha 20 12 2.4 0 4.6 9
Goa 0 12 0 8 14 8
Source: Ministry of Power, Government of India

c. Supply of low cost/ free electricity to Agricultural consumers

Many discoms are supplying either low-cost or free
electricity to agricultural consumers, which causes
huge revenue losses to them. To recover their revenue
losses, discoms charges higher to industrial and
commercial users, thus impacting their
competitiveness.
The Chart 7: Sale of Power and Revenue to
Agricultural and industrial consumers shows the
under recovery of revenue from agricultural
consumers. From 2012-16, the average recovery of
revenue from agricultural consumers was around 36
per cent whereas it was around 140 per cent from
industrial consumers.

Chart 7: Sale of Power and Revenue from Agricultural and Industrial Consumers (in Per cent)

41.4 41.1 41.5 40.9

30.6 29.7 Sale of power to Agricultural

29.2 28.2 Consumers to total Sales

22.2 22.3 22.4 Sale of power to Industrial

21.6 Consumers to Total Sales
Revenue from Agricultural
Consumers to Total Revenue
Revenue from Industrial
Consumers to Total Revenue
7.4 8.5 7.7
8.1

2012-13 2013-14 2014-15 2015-16

Source: PFC

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 12

 Also, it can be seen from Table 3 that in states like
Haryana, Punjab, Andhra Pradesh, Telangana and
Tamil Nadu, the revenue from sale of power to
Table 3: Sale of Power and Revenue to Agricultural and industrial consumers, 2015-16 (in Per cent)
At present, commercial and industrial users, and a
small segment of well-off consumers (falling in the
highest tariff slab), pay more than the cost of supply to
cross-subsidise other categories of consumers such
as agricultural, low-income households, etc. It is
possible that in the near future such consumers will
d. Poor Power Procurement Planning
Poor power procurement planning has also led to the
huge losses for the discoms. Power purchase cost
constitutes the largest cost component for distribution
licensees reflecting in the retail consumer tariff (see
Chart 8: APEPDCL Cost Structure); therefore, it is
important to manage the power purchase mechanism
effectively. Due to faulty forecasting, state discoms in
the past were heavily dependent on short – term
power purchases to meet their demand. The cost of
short term power price have been way higher than the
9. CERC 10.IEX
13 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD
agricultural sector is close to nil whereas the sector
consumes close to quarter of the total electricity sold.
partly or wholly offset their electricity needs through
open access or captive generation from solar rooftops
due to its low cost of electricity generation. Therefore,
this will have a major impact on the finances of
discoms, which are already suffering from huge
financial losses.
power provided through long term PPAs.
During 2011-12, in Tamil Nadu, where the discom
losses are one of the highest, had purchased 869 MUs
from power exchanges at a high price of around Rs
9
6.8/ kWh . It is to be noted that power prices in the
power exchanges has dropped down heavily in the last
few years; in 2016-17, the average power price in both
the exchanges (IEX and PXIL) was around Rs
10
2.5/Kwh .
 Chart 8: APEPDCL Cost Structure (in Per cent)
3% 0.82%
5%
1%
8%
Source: PFC
e. Era of Power Surplus
Discoms now are entangled in a situation where most
of the state discoms are power surplus. Due to poor
load forecasting, many of the state discoms now have
contracted more than the required power. As a result of
this, discoms have to pay the fixed charges to the
generators in the event of a back down, resulting in
f. Lack of Sound Regulatory Governance
As discussed earlier, the failure of ERCs to undertake
the truing up and tariff fixation timely had resulted in
losses for discoms in most of the states. Besides this,
ERCs in some states created regulatory assets for
discoms which also contributed to the growth of
losses. To avoid the required retail tariff increases,
regulatory assets are created by deferring the
0.18%
Power Purchase cost
Employee cost
O&M cost
Interest cost
Depreciation
Admin & Gen Exp
other expenses
82%
losses for them (the cost of electricity that discoms pay
have two components: Fixed and variable. While the
fixed charges are used to recover the costs of
establishing and operating power plants, the variable
charges are used to compensate for fuel charges).
recognised revenue recovery for discoms, on the
pretext that it will be recovered through gradual tariff
increases in the future. As per a World Bank report,
2014, it was estimated that nationwide regulatory
assets had reached around Rs 70,000 crore with an
interest component of more than Rs 9,000 crore a
year.
INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 14
 PAST SCHEMES
4
FOR DISCOMS
Keeping in view the poor performance of discoms, the
Government of India has introduced a series of
schemes and bailouts for the sector APDRP, R-APDRP
and FRP. However, due to the flawed implementation
a. Accelerated Power Development and Reforms Programme
With the rising commercial losses of SEBs (Rs 33,177
11
crore in 2000-01) and their incapability to upgrade
the sub-transmission and distribution system and
renovation and modernisation of old plants,
Government of India in February 2001, launched the
APDP. The funds in this scheme were earmarked to
I. Investment: This component was provided to
upgrade and strengthen sub-transmission and
distribution system. Under this component, a total
of Rs 20,000 crore was earmarked for states
during the period 2002-2007. For states other
than special category states, 50 per cent of the
project cost (25 per cent as grant and 25 per cent
as loan) was provided by central government and
the remaining 50 per cent states had to arrange
from different financial institutions as counterpart
funds.
11. Planning Commission, 2001-02
15 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD
of aforementioned schemes, discoms are still reeling
under financial stress, causing a severe threat to the
banking sector and the economy at large.
fi n a n c e p ro j e c t s re l a t e d t o re n ova t i o n a n d
modernisation/ life extension/ upgrading of old power
plants and upgrading and strengthening of sub-
transmission and distribution network. The scheme
had two components:
ii. Incentive: The incentive component was primarily
introduced to encourage utilities to reduce their
cash losses. Under this component, states were
provided incentives up-to 50 per cent of the actual
total loss reduction by SEBs/ Utilities. A total of Rs
20,000 crore was earmarked for states under this
component. For availing the funds under APDRP,
states had to fulfil certain requirements such as
setting up of SERCs; unbundling of SEBs;
encouragement of private participation in
generation, transmission and distribution; ensure
100 per cent metering in a phased manner; and
creation of separate distribution circles.
Outcome of the Scheme
The CAG audit report on APDRP and Report of APDRP scheme. Following are the causes for the
Standing Committee on Energy (2005-06) brought failure of APDRP scheme:
out many irregularities in the implementation of

· Delay in transferring of funds by state governments to SEBs/ utilities was one of the bottlenecks in the
implementation of projects under APDRP. Under the scheme, the state government had to release the
APDRP fund to the utility within a week of the said amount being credited to the state government; however,
some states had routed APDRP funds for other schemes, which delayed the implementation of projects.
· Lack of experience of SEBs/utilities to implement the APDRP projects on turn-key basis was also one of the
reasons for the failure
· Delay in the execution of projects showed that NTPC and PGCIL, who were assigned with the responsibility of
facilitating SEBs/utilities in the preparation and execution of projects, didn't carry out their responsibility
properly
· There was no system of penalising the states in case of non-utilisation of APDRP funds

b. Restructured Accelerated Power Development and Reforms Programme

To remove the loopholes in the formulation of APDRP
scheme, the Government of India in 2008, launched
the R-APDRP, with an outlay of Rs 51,577 crore during
the 11th five-year Plan. The scheme was further
extended to 12th five-year Plan in 2013.
The focus of R-APDRP was on sustainable loss
reduction, establishment of reliable and automated
systems for collection of accurate base line data
system and the adoption of information technology in
the areas of energy accounting and consumer services
before taking up the regular distribution strengthening
projects. The scheme was divided into three parts:
Part A: Part A was dedicated for the establishment of IT
enabled system for achieving accurate base line data
system in all towns with population greater than
30,000 as per 2001 census. Installation of
SCADA/DMS for towns with population greater than 4
lakhs & annual input energy greater than 350 MU was
also envisaged under Part-A.
For projects under this component, 100 per cent of the
funds were to be provided by GoI as loan, which could
be converted into grant provided the utilities
completes projects within three years of sanctioning of
the project and the developed system verified by an
independent agency.
Part B: Part B projects were related to up-gradation
and strengthening of sub-transmission and
distribution system. Under this component, 25 per
cent of the funds were to be provided by GoI as loan
and the rest utilities had to raise from financial
institutions. However, up-to 50 percent of the loan
against Part-B projects was convertible into grant, if
the utility reduced its AT&C loss to 15 percent on a
sustained basis for five years in the project area.
Part C: Part C was reserved for capacity building of
power distribution utility personnel by PFC. PFC was
appointed as a nodal agency for the operationalisation
and implementation of R-APRDP scheme, under the
overall guidance of the MoP.
R-APDRP again received the same fate as APDRP.
The scheme suffered from implementation failures
and did not achieve its desired objective of lowering the
AT&C losses to 15 per cent. Right from delays (up to 13
months) in finalisation of preparatory activities to low
utilisation of funds to improper monitoring of projects,
the scheme faltered on many grounds, as noticed by
the CAG audit report (2016) on R-APDRP. The scheme
now has been subsumed in IPDS since December
2014 and no separate budget for R–APDRP has been
allocated after 2014–15.

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 16

 c. Financial Restructuring Plan
Over the years, high AT&C losses, inadequate tariff
hikes, supply of free or low cost power to domestic and
agricultural consumers and high cost of power
purchase had a cascading effect on the balance sheets
of state discoms. By the end of March 2012, state
· 50 per cent of the outstanding Short Term
Liabilities (STL) up-to March 31, 2012, were to be
taken over by the states and converted into bonds,
which was to be issued by discoms to lenders with
· The remaining 50 per cent liabilities were to be
restructured into long term loans by lenders, to be
Outcome of the Scheme
The states were unable to reduce their AT&C losses
which further increased their liabilities. Accumulated
losses of state discoms increased from Rs 1.9 lakh
crore in March 2012 to Rs 3.8 lakh crore in March
17 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD
Discoms had accumulated losses of around Rs 1.9
lakh crore. Taking stock of this severe crisis,
Government of India in September 2012 introduced
FRP to turnaround the financially stressed discoms.
Salient features of the scheme:
due backing of the state governments. The state
governments had to take over the 50 percent STL
within the next 2-5 years
repaid by discoms with a moratorium period of 3
years on principal repayment.
2015. Further, many of the states were unable to fulfil
the mandatory conditions stipulated under FRP,
making them unable to receive central financial
assistance.
 5
UJWAL DISCOM
ASSURANCE YOJANA (UDAY)
Discoms by March 2015 had accumulated losses of
approximately Rs 3.8 lakh crore and had an
outstanding debt of Rs 4.3 lakh crore. To reduce the
financial stress, Government of India in November
· Reduction in interest cost of discoms
· Improving operational efficiencies of discoms
The scheme allows the participating states to take
over 75 per cent of discoms' debt within two years of
signing the scheme – 50 per cent debt take over in the
first year and 25 per cent in the second year. For the
debt taken over, the states have to issue the bonds in
2015, introduced the UDAY scheme for financial
turnaround and revival of discoms. The scheme aims
to achieve this through the following initiatives:
· Reduction in cost of power purchase
· Enforcing financial discipline on discoms
through alignment with state finances
the market or directly to the respective banks/
Financial Institutions. In addition to this, states have to
take over and fund the future losses of discoms in a
graded manner (see Table 5: Year-wise details of
funding of losses by states).
INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 18
 Table 5: Year-wise details of Funding of Losses by States

The Scheme not only intends to improve the financial
condition of discoms but also focuses on improving the
operational efficiencies of discoms. With the
improvement in operational efficiency, the Scheme
aims to bring down the AT&C losses of all discoms to 15
per cent and a reduction in gap between ACS and ARR
to zero by the end of 2018-19.
As an incentive, states achieving operational
milestones are given additional/ priority funding
through Deendayal Upadhyaya Gram Jyoti Yojana
(DDUGJY), IPDS and Power Sector Development
Fund (PSDF). In case of non- compliance, the states
will have to forfeit their claims on IPDS and DDUGJY
grants.

Progress under UDAY

As of now, 27 states and 5 Union Territories have opted
for the scheme. UDAY has been successful in reducing
financial losses of state discoms from Rs 51,589.5
crore (2015-16) to Rs 14,833 crore (9M 2017-18, up to
12
December) .
During 2011-12, in Tamil Nadu, where the discom
losses are one of the highest, had purchased 869 MUs
from power exchanges at a high price of around Rs
6.8/ kWh. It is to be noted that power prices in the
power exchanges has dropped down heavily in the last
few years; in 2016-17, the average power price in both
the exchanges (IEX and PXIL) was around Rs
2.5/Kwh.

Bonds issued
Most of the states have issued more than 75 per cent of the
discoms debt as bonds, with the national average
registering 86.3 per cent. Jammu & Kashmir, Madhya
Pradesh, Chhattisgarh, Bihar and Jharkhand have
achieved 100 per cent restructuring of discom debts under
the scheme (see Chart 10: Bonds issued by different state
governments under UDAY).

12. UDAY portal

19 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

 Chart 9: Bonds issued by Different State Governments under UDAY (in Rs Crore)

Reduction in AT&C losses

At the national level, there has been a decrease of 2.12 fallen short of targets (as mentioned under their MOUs)
per cent in the AT&C losses. The AT&C losses have in reducing their AT&C losses. Andhra Pradesh, Tamil
fallen down from 23.98 per cent (2015-16) to 21.79 per Nadu and Karnataka have come very close in
cent (present data from UDAY portal). However, at the achieving their targets (see Chart 10: Reduction of
state level, except Himachal Pradesh, Gujarat, AT&C losses in states after UDAY).
Telangana, Kerala, Goa and Tripura, all the states have

Chart 10: Reduction of AT&C losses in States after UDAY (in Per cent)

49.8

39.5 40.5
38
35 36.0
34.3 33.5 32.6
29.3 29
27.5
25
23.63 23.3 22.7 23.1
22.1 22
19.15 20.0 20.2
18 17.75 18.7
13 17.5 17.0 16.59 16.4
15.61 16.1
14.5 14.1 15 15 15
12.9 13.79 13.50
13.1
11.12 12.0 11.23
9.4 10.0 10.3
8.27

Current AT&C AT&C -Reduction target for 2017-18

Source: UDAY portal accessed on 13 November, 2019; MOUs signed between Central government, state governments and discoms

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 20

 Reduction of Gap between ACS and ARR
At the national level, gap between ACS and ARR has
reduced from Rs 0.65/Kwh (2015-16) to Rs
0.39/Kwh (present data from UDAY portal). For states
like Himachal Pradesh, Gujarat, Karnataka &
Maharashtra ACS-ARR gap is negative, which is a
positive development. Jammu & Kashmir (erstwhile
state), Punjab, Assam, Rajasthan, Jharkhand and
Bihar, however, still have very high ACS-ARR gap (see
Chart 11: Current ACS-ARR Gap).

Chart 11: Current ACS-ARR Gap (in Rs/ Kwh)

UDAY's impact on States' Finances

Taking over of debt from discoms have taken a toll on
the states' finances. Many states have breached their
fiscal target (3 per cent of GDP, as stated in the FRBM
act) in 2017-18. For instance, Assam's Budget
Estimate (B E) of fiscal deficit for 2017-18 was 2.98 per
cent but the Revised Estimate (RE) came out to be
16.23 percent. Similarly, for Bihar, the BE was 2.87 per
cent but RE was 7.50 (see Chart 12: States' fiscal
deficit).

21 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD

 Chart 12: States' Fiscal Deficit (as Per cent of GSDP)

To remain within the fiscal limits, some states have Nadu have taken 12.9, 15.9, 11.9 and 12.6 per cent cut
also cut down their crucial capital expenditure. in their capital expenditures in 2017-18, respectively
Telangana, Madhya Pradesh, Chhattisgarh and Tamil (see Chart 13: States' Capital Expenditure).

Chart 13: States' Capital Expenditure (in Rs Crore)

The situation can become worse for some states in the taken over. If the states are unable to pay, they will run
future, as from 2021-22 onwards, these states will into a debt spiral, which will further cause an a impact
have to start with principal repayment on the debt on their budgets.

INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 22

 6 RECOMENDATIONS
Many reforms and schemes have been introduced in
the past for improving the distribution sector. However,
most of the state discoms are still reeling under
financial stress, and even now there is a problem of
affordable and reliable power in the country. In order to
Short Term
a. Separation of Carriage and Content
The idea of 'Separation of Carriage and Content' was
first introduced by GoI in Electricity (Amendment) Act,
2014. Through this, the government proposed to
segregate the distribution network business and the
electricity supply business to promote competition,
efficiency in operations and improvement in quality of
supply of electricity. Due to resistance from the
stakeholders, the idea as of now has been dropped by
the government.
13. Economic Times, 2017
23 INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD
have a vibrant Indian power sector, it is imperative to
improve the shortcomings of the distribution sector
which can be achieved through concerted efforts from
all policymakers/ regulators. Some of the key
recommendations include:
Many reforms in the past such as distribution
franchisee system and parallel licensing have been
introduced in haste which has not resulted in reducing
the financial losses of discoms. Therefore, before the
full implementation of “Separation of Carriage and
Content”, government should carry out pilot projects in
some of the big cities of India to check the viability of
the proposed system.
b. Implementation of DBT
State discoms at present use cross-subsidy (charged
to industries) and direct annual subsidy (received from
state governments) to recover their losses incurred by
providing cheaper power to R&A users. The subsidy,
however, is used by discoms to not only recover their
losses but also to cover their operational inefficiencies.
Therefore, to prevent the misuse of subsidies by
discoms, states should provide electricity subsidies to
R&A users through DBT, which is an efficient subsidy
delivery mechanism. DBT will serve as an important
c. Introduce smart metres & pre - paid metering
To reduce AT&C losses, installation of smart meters
and concept of pre-paid metering shall be introduced
by discoms to reduce the power theft. Penal actions
d. Sound Power Procurement Planning
Around 70 per cent of discoms' expenditure is on
power purchase. It is, therefore, imperative for discoms
to optimise their power procurement. An improvement
Medium to Long Term Policy Recommendations
a. Improvement in Regulatory Governance
ERCs have an important role to play in the proper
functioning of the distribution sector. It is, therefore,
important for ERCs to work independently without the
political interference. Efforts should be made to make
ERCs independent.
The term of the appointments for chairman and
members of ERCs should be reduced to three-years in
consonance with the proposed Electricity
b. Gradual Elimination of Cross-Subsidies
As stipulated in Electricity Act 2003; National
Electricity Policy, 2005; and Tariff policy, 2006, State
Electricity regulatory commissions (SERCs) should
tool for channelling the subsidies to where they need
to go, checking wastage of public funds and prevent
scope of corruption therein.
The DBT scheme for Liquefied Petroleum Gas (LPG)
has been a huge success. After the launch of the
scheme, the LPG cylinders are sold to customers at
market prices by the distribution licensees and
customers directly receive LPG subsidy in their bank
accounts. The government has saved INR 26,408
13
crore after the implementation of DBT in LPG .
shall be taken against discoms for not complying with
this.
in load forecasting and power procurement from
different cheaper sources will result in increasing
gross margin and energy availability for a discom.
(Amendment) Act, 2014. The state government in
power at the time of appointment normally escapes
the consequences of interfering with the functioning of
the Regulation Commission by virtue of having five-
year tenure itself. The burden thereof inevitably falls
squarely on the discoms and the next government
which comes to power. This ends up becoming a catch
twenty-two situation.
take steps for reducing/eliminating cross subsidies to
benefit industries.
INDIA'S ELECTRICITY DISTRIBUTION COMPANIES | TRENDS & WAY FORWARD 24
NOTES
NOTES
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