However, recent data indicates a downward trend in AT&C losses, prompting a closer examination of these figures to determine whether these improvements are sustainable and how they could alleviate the financial burden of Indian discoms.
The impact of AT&C losses is significant. While regulators allowed certain loss levels, discoms have lost a lot more, and although AT&C losses fell from 30.5% of energy in 2006-07 to 15.8% in 2022-23, they remain a concern.
Public-sector discoms suffered a cumulative loss of more than ₹4 trillion on account of excessive AT&C losses over 17 years till 2022-23. These losses comprise technical (or billing) losses and collection losses.
In a recent study, the Centre for Social and Economic Progress (CSEP) focused on billing losses to observe a significant improvement from 26.2% in 2006-07 to 13.3% in 2022-23, but, barring two years, they exceeded the regulatory limit.
Reducing billing losses is vital. It directly facilitates a reduction in power purchase costs (which constitute 80% of power tariffs), lowers pressure on working capital requirements and offers relief on the revenue front.
Discom finances reveal that this leakage was estimated at over ₹4,500 crore in 2022-23, based on average billing losses of 13.3% against their average target of 12.6%.
Shortfalls (except two years) in achieving billing loss targets over the 17 years through 2022-23 has led to losses of ₹75,000 crore. So, how can billing losses be reduced and what benefits can we expect?
While policymakers have often called for AT&C losses to be reduced to around 15%, let us look at the progress made.
As this is a composite loss target (billing plus collection losses), the desired average billing-loss target across discoms can be assumed to be nearly 14%. By the end of 2022-23, over 10 discoms had cut losses to under 10%, with some close to the 6% mark.
Clearly, their reduction paths have been uneven. While we celebrate the efforts of better-performing discoms, can big loss-makers adopt a more aggressive downward trajectory? Why not aim for, say, 6% across all discoms? What would it take?
So far, loss reduction has been facilitated by capital investments, expenditure on repairs and maintenance and vigilance over theft. But there is an opportunity to leverage available instruments to do much more.
As for benefits, billing losses reduced to the 6% level would spell potential savings of around ₹33,000 crore per annum from 2029-30 onwards.
This calculation is based on current power purchase costs, which may increase in the future. Yet, If achieved, the financial benefit could potentially let discoms ease the tariff burden on consumers.
As we explore ways and means to achieve what discoms must, the journey towards reduced billing losses is fraught with challenges. Achieving tighter targets requires a multifaceted approach, which may include significant investments in infrastructure and technology.
However, accurately measuring the impact of these investments is also complicated by several factors. For example, India’s lack of universal metering, particularly of agricultural consumption, introduces significant data inaccuracies.
Historical data gaps and a reliance on past assumptions tend to further hinder effective measurement. Additionally, while many investments aim to reduce losses, their multi-purpose nature complicates the task of isolating components that directly contribute to billing-loss improvements.
For a start, regulators should do away with determining a composite AT&C target and instead specify separate loss trajectories for billing and collection losses.
This should be done while taking a more aggressive approach, where the billing-loss target is set at 6% rather than the ‘implicit’ 12.6% level right now.
Regulators may also consider a longer timeframe, such as a range of 7-to-10 years, depending on discoms’ current loss levels, expected investment in improving networks, etc.
The government has several large investment programmes for the state-owned part of the power sector, such as the Revamped Distribution Sector Scheme. These have multiple objectives and understanding the efficacy of such investments is complex.
This complexity can be simplified by designing an exclusive scheme for billing-loss reduction. Regulators should also consider a higher normative allocation of revenue towards repair and maintenance in their multi-year-tariff regulations.
Further, metering at the distribution transformer and feeder levels should be prioritized for accurate loss measurement. Regulators should also consider setting feeder-level loss trajectories, which would better align regulatory provisions with the efforts of discoms to control power theft.
The improvements so far in billing losses in India’s electricity sector have been encouraging, but must be placed in the context of broader challenges faced by discoms.
By addressing the underlying problem of billing losses and implementing optimized strategies, the financial health of the distribution sector could be enhanced significantly, ultimately benefiting discoms as well as the consumers they serve.
These are the author’s personal views.
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