The Industries and Commerce sector provides cross-subsidies to electricity prices for certain segments. Such as India, Agriculture, and Local Sector. Finance Minister Nirmala Sitharaman announced on May 13 the part of the package, was an Rs.90,000 crore liquidity injection into power distribution companies.
The purpose of this step
– Helping the Discoms settle their dues with Gencos
-In turn can settle their outstanding dues with suppliers
-Easing some of the working capital distress of Coal India Ltd and contract miners.
Condition here is, the center will serve as guarantor for loans issued by the state-owned power finance companies PFC and ROC Limited to Discom.
Why was this important to the power sector
The primary motivator is the poor financial position and the revenue collection capability of most state Discoms.
How the Power sector works, we can imagine a three-stage process.
Electricity is generated in thermal, hydro or renewable power plants and operated by state-owned companies. Such as NTPC Limited, NHPC Limited, or private companies such as Tata Power and Adani Power. Or renewable, like ReNew Power or Greenko.
The electricity generated. Then passes through a complex transmission grid system comprising electricity substations, transformers and cables connecting electricity producers and end consumers.
The remittance sector largely dominated by state-owned companies. Such as Power Grid Corp, which operates the grid.
Similarly, each state has its own State Transmission Utilities (STU) and Private Transmission Utilities, which are responsible for setting up inter-transmission projects.
Companies such as the Power Systems Operations Corporation (POSCO) and the National, Regional and State Departch Centers (NLDC, RLDC, SLDC) work in tandem to ensure grid security and balance.
Connecting hundreds of thousands of power consumers nationwide with hundreds of thousands of miles of high voltage power lines and low voltage power distribution transformers.
This last-mile connection is where Discoms come in, operated largely by state governments. However, in cities like Delhi, Mumbai, Ahmedabad and Kolkata, the entire distribution business or parts of it owned by private companies.
Why there is a problem
The Discoms purchase power from generating companies through Power Purchase Agreements (PPAs) and then delivers it to their customers (in their area of distribution).
This affected the purchasing power of the supply and the ability to invest in improving the distribution infrastructure. This affects the quality of electricity consumers receive.
There are two basic problems here.
For one, cross-subsidies provided by the Electricity Industry and Commerce Sector for certain sectors like India, Agriculture and Local category.
This affects the competitiveness of the industry. The government has begun a process of gradually reducing the amount of cross-subsidy. This is easier said than done, since states do not want to increase tariffs on politically sensitive constituents such as farmers.
So the industry continues to cross-subsidies for these categories.
The second one is the issue of (AT&C) Total Transmission and Distribution Loss. It is a technical term. It represents the gap between the electricity cost that a Discom gets from the generating company, the bills. That it raises and the final realization of the collection process from end-consumers.
There are regulatory bodies, such as the State Regulatory Commission (SERC). Largely responsible for ensuring that tariff amendments occur regularly, The Discom is charging for the electricity it supplies to every customer. This has not been so successful.
As a result of this, Discoms perennial funds are scarce, even to pay for electricity. As a resulting impact the value chain is rising.
Therefore, the intervention announced last week seeks to ensure timely funding for Discoms through PFC and REC so that their bills can clear.
On the other hand, generators and transmitting companies that are upwards in the value chain can benefit. Also, they can pay their suppliers, such as Coal India Limited or GAIL (Coal and Gas Suppliers) and L&T or BHEL (Equipment, Civil Works). Contractor).