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Last week, the Power Finance Corporation reported that state-owned power distribution companies across the country made financial losses amounting to Rs 68,832 crore in 2022-23. This is four times higher than the losses witnessed in 2021-22, and roughly equivalent to the annual budget of a state like Uttarakhand. This blog examines some of the causes and implications of such losses.
Overview of financial losses
For several years now, electricity distribution companies (discoms), which are mostly state-owned, have witnessed steep financial losses. Between 2017-18 and 2022-23, losses accumulated to over three lakh crore rupees. In 2021-22, discom witnessed substantial reduction in their losses, primarily because states released 1.54 lakh rupees in subsidies to clear pending dues. State governments provide discoms with subsidies, so that domestic and agricultural consumers receive affordable power. These payments are typically delayed which creates cash flow constraints, and leads to an accumulation of debt. In addition, costs incurred by discoms in 2021-22 remained unchanged.
Note: Data from 2020-21 onwards does not include Odisha, and Dadra & Nagar Haveli and Daman and Diu since their distribution function was privatised in 2020-21. Data for Ladakh is available from 2021-22 onwards. Data for Jammu and Kashmir is not available. The Delhi Municipal Council Distribution Utility has been included from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
As of 2022-23, losses have increased again to reach Rs 68,832 crore. This increase has been driven by rising costs. At a per unit level, the cost of supplying one kilowatt of electricity rose from 7.6 rupees in 2021-22, to 8.6 rupees in 2022-23 (See Table 1).
Table 1: Financial details of state-owned power distribution companies
Details |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
Average cost of supplying power (ACS) |
7.4 |
7.7 |
7.6 |
8.6 |
Average revenue realised (ARR) |
6.8 |
7.1 |
7.3 |
7.8 |
Per unit loss (ACS-ARR) |
0.6 |
0.6 |
0.3 |
0.7 |
Total losses (in Rs crore) |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
Note: Data from 2020-21 onwards does not include Odisha, and Dadra & Nagar Haveli and Daman and Diu since their distribution function was privatised in 2020-21. Data for Ladakh is available from 2021-22 onwards. Data for Jammu and Kashmir is not available. The Delhi Municipal Council Distribution Utility has been included from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
Purchase of electricity from generation companies (gencos) forms about 70% of a discom’s total costs, and coal is the primary source for generating electricity. The following chain of events took place in 2022-23: (i) consumer demand for electricity rose by 10% over the previous year, as compared to a 6% year-on-year increase in the past 10 years, (ii) coal had to be imported to meet the increased demand, and (iii) global coal prices were elevated.
Coal imported at elevated prices to keep up with rising electricity demand
In 2022-23, demand for electricity increased by 10% over 2021-22. Between 2008-09 and 2018-19, demand increased at an annual growth rate (CAGR) of 6%. Electricity demand grew as the economy grew (at 7%), and largely came from domestic and agricultural consumers. These consumer categories account for 54% of the total electricity sales, and their demand rose by 7%.
Sources: Central Electricity Regulatory Commission; PRS.
Electricity cannot be stored at scale, which means that generation must be scheduled depending on anticipated demand. The Central Electricity Authority anticipates annual demand for each year. It estimated that demand in 2022-23 would be at 1,505 billion units. However, the actual demand was higher than anticipated in the first few months of 2022-23 (See Figure 3).
To meet this demand, electricity generation had to be ramped up. Coal stocks had already depleted from 29 million tonnes in June 2021 to eight million tonnes in September 2021, on account of high demand in 2021-22. To ensure uninterrupted supply of power, the Ministry of Power directed gencos to import coal. The Ministry noted that without imports, widespread power cuts and blackouts would have occurred.
Sources: Load Generation Balance Report 2022 and 2023, Central Electricity Authority; PRS.
Coal imports rose by about 27 million tonnes in 2022-23. While this constituted only 5% of the overall coal used in the sector, the price at which it was imported significantly impacted the sector. In 2021-22, India imported coal at an average price of Rs 8,300 per tonne. This rose to Rs 12,500 per tonne in 2022-23, a 51% increase. Coal was primarily imported from Indonesia, and prices shot up due to the Russia-Ukraine war, and demand surge by countries like India and China.
Sources: Ministry of Power; Ministry of Statistics and Programme Implementation; PRS.
Coal import situation going forward
In January 2023, the Ministry of Power advised gencos to import 6% of the required coal, to ensure sufficient stock until September 2023. It noted that due to floods and variable rainfall in various parts of the country, hydro generation capacity reduced by about 14%. This put additional burden on coal based thermal generation in 2023-24. Following this, in October 2023, the Ministry directed all gencos to continue using at least 6% imported coal until March 2024.
Sources: Ministry of Coal; PRS.
Structural issues in the power sector and its impact on state finances
Discoms witness persistent financial losses due to certain structural issues. Their costs are typically high because of old contracts with generation companies (gencos). Power purchase costs in these contracts do not account for production efficiencies over the years, and costs remain unchanged. Tariffs are only revised every few years, to ensure that consumers are protected from supply chain shocks. As a result, costs are carried forward for a few years. In addition, discoms sell electricity to certain consumers such as agricultural and residential consumers, below cost. This is supposed to primarily be recovered through subsidy grants provided by state governments. However, states often delay subsidy payments leading to cash flow issues, and accumulation of debt. In addition, tariff recovery from the power sold is not optimal.
Losses reported in the generation sector have also increased. In 2022-23, state-owned gencos reported losses worth Rs 7,175 crore, as compared to the Rs 4,245 crore in 2021-22. Rajasthan accounted for 87% of these, at Rs 6,278 crore. Note that under the Late Payment Surcharge Rules, 2022, discoms are required to make upfront payments to gencos.
Risk to state finances
Persistent financial losses, high debt and guarantees extended by states continue to pose a risk to state finances. These are contingent liabilities for state governments, i.e., in the event a discom is unable to repay its debt, the state would have to take it over.
Several such schemes have been introduced in the past to bail discoms out (See Table 2). As of 2022-23, discoms have an outstanding debt worth Rs 6.61 lakh crore, 2.4% of the national GDP. Debt is significantly high in states such as Tamil Nadu (6% of GSDP), Rajasthan (6% of GSDP), and Uttar Pradesh (3% of GSDP). Previous Finance Commissions have recognised that strengthening discom finances is key in minimising the risk to state finances.
Table 2: Key government schemes for the turnaround of the distribution sector over the years
Year |
Scheme |
Details |
2002 |
Bailout Package |
States take over the debt of state electricity boards worth Rs 35,000 crore, 50% waiver of interest payable by state electricity boards to central PSUs |
2012 |
Financial Restructuring Package |
States take over 50% of the outstanding short-term liabilities worth Rs 56,908 crore |
2015 |
Ujwal Discom Assurance Yojana (UDAY) |
States take over 75% of the debt of discoms worth Rs 2.3 lakh crore and also provide grants for any future losses |
2020 |
Liquidity Infusion Scheme |
Discoms get loans worth Rs 1.35 lakh crore from Power Finance Corporation and REC Limited to settle outstanding dues of generators, state governments provide guarantee |
2022 |
Revamped Distribution Sector Scheme |
Central government to provide result-linked financial assistance worth Rs 97,631 crore for strengthening of supply infrastructure |
Sources: NITI Aayog, Press Releases of the Ministry of Power; PRS.
For more details on the impact of discom finances on state finances, see here. For more details on structural issues in the power distribution sector, see here.
ANNEXURE
Table 3: Cost and revenue structure of discoms on energy sold basis (in Rs per kw)
Details |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
Average cost of supplying power (ACS) |
7.4 |
7.7 |
7.6 |
8.6 |
of which |
||||
Cost of procuring power |
5.8 |
5.9 |
5.8 |
6.6 |
Average revenue realised (ARR) |
6.8 |
7.1 |
7.3 |
7.8 |
of which |
||||
Revenue from sale of power |
5.0 |
4.9 |
5.1 |
5.5 |
Tariff subsidy |
1.3 |
1.4 |
1.4 |
1.5 |
Regulatory income and revenue grant under UDAY |
0.3 |
0.1 |
0.0 |
0.2 |
Per unit loss |
0.6 |
0.6 |
0.3 |
0.7 |
Total financial losses |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
Sources: Power Finance Corporation reports for various years; PRS.
Table 4: State-wise profit/loss of power distribution companies (in Rs crore)
State/UT |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
2021-22 |
2022-23 |
Andaman and Nicobar Islands |
-605 |
-645 |
-678 |
-757 |
-86 |
-76 |
Andhra Pradesh |
-546 |
-16,831 |
1,103 |
-6,894 |
-2,595 |
1,211 |
Arunachal Pradesh |
-429 |
-420 |
NA |
NA |
NA |
NA |
Assam |
-259 |
311 |
1,141 |
-107 |
357 |
-800 |
Bihar |
-1,872 |
-1,845 |
-2,913 |
-2,966 |
-2,546 |
-10 |
Chandigarh |
321 |
131 |
59 |
79 |
-101 |
NA |
Chhattisgarh |
-739 |
-814 |
-571 |
-713 |
-807 |
-1,015 |
Dadra & Nagar Haveli and Daman & Diu |
312 |
-149 |
-125 |
NA |
NA |
NA |
Delhi |
NA |
NA |
NA |
98 |
57 |
-141 |
Goa |
26 |
-121 |
-276 |
78 |
117 |
69 |
Gujarat |
426 |
184 |
314 |
429 |
371 |
147 |
Haryana |
412 |
281 |
331 |
637 |
849 |
975 |
Himachal Pradesh |
-44 |
132 |
43 |
-153 |
-141 |
-1,340 |
Jharkhand |
-212 |
-730 |
-1,111 |
-2,556 |
-1,721 |
-3,545 |
Karnataka |
-2,439 |
-4,889 |
-2,501 |
-5,382 |
4,719 |
-2,414 |
Kerala |
-784 |
-135 |
-270 |
-483 |
98 |
-1,022 |
Ladakh |
NA |
NA |
NA |
NA |
-11 |
-57 |
Lakshadweep |
-98 |
-120 |
-115 |
-117 |
NA |
NA |
Madhya Pradesh |
-5,802 |
-9,713 |
-5,034 |
-9,884 |
-2,354 |
1,842 |
Maharashtra |
-3,927 |
2,549 |
-5,011 |
-7,129 |
-1,147 |
-19,846 |
Manipur |
-8 |
-42 |
-15 |
-15 |
-22 |
-146 |
Meghalaya |
-287 |
-202 |
-443 |
-101 |
-157 |
-193 |
Mizoram |
87 |
-260 |
-291 |
-115 |
-59 |
-158 |
Nagaland |
-62 |
-94 |
-477 |
-17 |
24 |
33 |
Puducherry |
5 |
-39 |
-306 |
-23 |
84 |
-131 |
Punjab |
-2,760 |
363 |
-975 |
49 |
1,680 |
-1,375 |
Rajasthan |
-11,314 |
-12,524 |
-12,277 |
-5,994 |
2,374 |
-2,024 |
Sikkim |
-29 |
-3 |
-179 |
-34 |
NA |
71 |
Tamil Nadu |
-12,541 |
-17,186 |
-16,528 |
-13,066 |
-9,130 |
-9,192 |
Telangana |
-6,697 |
-9,525 |
-6,966 |
-6,686 |
-831 |
-11,103 |
Tripura |
28 |
38 |
-104 |
-4 |
-127 |
-193 |
Uttar Pradesh |
-5,269 |
-5,902 |
-3,866 |
-10,660 |
-6,498 |
-15,512 |
Uttarakhand |
-229 |
-808 |
-323 |
-152 |
-21 |
-1,224 |
West Bengal |
-871 |
-1,171 |
-1,867 |
-4,261 |
1,045 |
-1,663 |
State Sector |
-56,206 |
-80,179 |
-60,231 |
-76,899 |
-16,579 |
-68,832 |
Dadra & Nagar Haveli and Daman & Diu |
NA |
NA |
NA |
242 |
148 |
104 |
Delhi |
109 |
657 |
-975 |
1,876 |
521 |
-76 |
Gujarat |
574 |
307 |
612 |
655 |
522 |
627 |
Odisha |
NA |
NA |
-842 |
-853 |
940 |
746 |
Maharashtra |
NA |
590 |
1,696 |
-375 |
360 |
42 |
Uttar Pradesh |
182 |
126 |
172 |
333 |
256 |
212 |
West Bengal |
658 |
377 |
379 |
398 |
66 |
-12 |
Private Sector |
1,523 |
2,057 |
1,042 |
2,276 |
2,813 |
1,643 |
All-India |
-54,683 |
-78,122 |
-59,189 |
-77,896 |
-13,766 |
-67,189 |
Note: Minus sign (-) indicates loss; Dadra & Nagar Haveli and Daman & Diu discom was privatised on April 1, 2022; New Delhi Municipal Council Distribution utility has been added from 2020-21 onwards.
Sources: Power Finance Corporation reports for various years; PRS.
As of May 11, 2020, there are 67,152 confirmed cases of COVID-19 in India. Since May 4, 24,619 new cases have been registered. Out of the confirmed cases so far, 20,917 patients have been cured/discharged and 2,206 have died. As the spread of COVID-19 has increased across the country, the central government has continued to announce several policy decisions to contain the spread, and support citizens and businesses who are being affected by the pandemic. In this blog post, we summarise some of the key measures taken by the central government in this regard between May 4 and May 11, 2020.
Source: Ministry of Health and Family Welfare; PRS.
Industry
Relaxation of labour laws in some states
The Gujarat, Himachal Pradesh, Rajasthan, Haryana, and Uttarakhand governments have passed notifications to increase maximum weekly work hours from 48 hours to 72 hours and daily work hours from 9 hours to 12 hours for certain factories. This was done to combat the shortage of labour caused by the lockdown. Further, some state governments stated that longer shifts would ensure a fewer number of workers in factories so as to allow for social distancing.
Madhya Pradesh has promulgated the Madhya Pradesh Labour Laws (Amendment) Ordinance, 2020. The Ordinance exempts establishments with less than 100 workers from adhering to the Madhya Pradesh Industrial Employment (Standing Orders) Act, 1961, which regulates the conditions of employment of workers. Further, it allows the state government to exempt any establishment or class of establishments from the Madhya Pradesh Shram Kalyan Nidhi Adhiniyam, 1982, which provides for the constitution of a welfare fund for labour.
The Uttar Pradesh government has published a draft Ordinance which exempts all factories and establishments engaged in manufacturing processes from all labour laws for a period of three years. Certain conditions will continue to apply with regard to payment of wages, safety, compensation and work hours, amongst others. However, labour laws providing for social security, industrial dispute resolution, trade unions, strikes, amongst others, will not apply under the Ordinance.
Financial aid
Central government signs an agreement with Asian Infrastructure Investment Bank for COVID-19 support
The central government and Asian Infrastructure Investment Bank (AIIB) signed a 500 million dollar agreement for the COVID-19 Emergency Response and Health Systems Preparedness Project. The project aims to help India respond to the COVID-19 pandemic and strengthen India’s public health system to manage future disease outbreaks. The project is being financed by the World Bank and AIIB in the amount of 1.5 billion dollars, of which one billion dollars is being provided by World Bank and 500 million dollars is being provided by AIIB. This financial support will be available to all states and union territories and will be used to address the needs of at-risk populations, medical personnel, and creating medical and testing facilities, amongst others. The project will be implemented by the National Health Mission, the National Center for Disease Control, and the Indian Council of Medical Research, under the Ministry of Health and Family Welfare.
Travel
Restarting of passenger travel by railways
Indian Railways plans to restart passenger trains from May 12 onwards. It will begin with 15 pairs of trains which will run from New Delhi station connecting Dibrugarh, Agartala, Howrah, Patna, Bilaspur, Ranchi, Bhubaneswar, Secunderabad, Bengaluru, Chennai, Thiruvananthapuram, Madgaon, Mumbai Central, Ahmedabad and Jammu Tawi. Booking for reservation in these trains will start at 4 pm on May 11. Thereafter, Indian Railways plans to start more services on new routes.
Return of Indians stranded abroad
The central government will facilitate the return of Indian nationals stranded abroad in a phased manner beginning on May 7. The travel will be arranged by aircraft and naval ships. The stranded Indians utilising the service will be required to pay for it. Medical screening of the passengers will be done before the flight. On reaching India, passengers will be required to download the Aarogya Setu app. Further, they will be quarantined by the concerned state government in either a hospital or a quarantine institution for 14 days on a payment basis. After quarantine, passengers will be tested for COVID-19 and further action will be taken based on the results.
For more information on the spread of COVID-19 and the central and state government response to the pandemic, please see here.