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There are limits to the viability of financial engineering solutions to what is essentially a political problem. This is what is clear from the legal tussle over an attempt by an Andhra Pradesh power distribution company (discom) to buy power from the spot market, overriding objections by the central government.
The Andhra Pradesh High Court has ruled that the discom can make the purchase and the Union power ministry has decided to contest the ruling in the Supreme Court. The case really points to the fact that there can be no shortcuts to the essential political solution of levying reasonable users’ charges and overseeing a functional market for power nationally.
The Centre issued an order in July 2019, asking discoms to maintain letters of credit in favour of power producers or face curtailment in electricity supply by regional load despatch centres. This is to persuade state utilities to pay for the power they consume.
The fact also is that there seems a sorry lack of political will to walk the talk on distribution reforms. Instead, there seems perverse incentive on the part of the powers that be to curry favour with the electorate, and routinely overlook widespread revenue leakage, sheer non-payment and plain theft of electricity. It has meant rising dues of discoms to power producers, now put at over Rs 1.25 lakh crore.
The constant under-recoveries in power distribution has, unsurprisingly, led to moribund finances of discoms, and a lack of resources to even provide bank guarantees for power purchase.
The way forward is for politicians to muster the courage to say that those who consume power must pay for it. Without that, power would be scarce, electricity would be a major source of financial slippage and growth would be undermined.
Courtesy - The Economic Times.
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