Neethi Lisa Rojan| Aug 19, 2022
The Tamil Nadu electricity distributor has the highest losses, debt among all state-owned companies
TANGEDCO (Tamil Nadu Generation and Distribution Corporation) has the highest losses and debt among all state-owned discoms (power distribution company) in India, due to high subsidy costs and unrecovered bills from government-sector defaulters, according to the Jun 2022 State Indebtedness Report by RBI ‘State Finances: A Risk Analysis’.
TANGEDCO has record losses of ₹13,407.01 crore and long-term debt of ₹ 89,632.94 crores, according to its FY 2020-21 financial reports. Globally, discoms charge households an average of ₹10 kWh. In India it is around ₹6.”India being a developing country and electricity being one of the essential commodities for many sections of the society, it is difficult for the DISCOMs to charge similar electricity price as their global counterparts”, said Rudranil Roysharma, Director for Frost & Sullivan’s Energy & Environment Practice – MEASA.
The irony of subsidies
There is an interesting fact revealed in the electricity subsidy expenditure by the state. Tariff slabs with higher consumption rates are the biggest beneficiaries of subsidies. The highest subsidy allocation by the State Government goes to tariff slab III (200-500 units bi-monthly) with ₹1227.84 crore in FY 2019-20, according to Tamil Nadu Electricity Regulatory Commission. Total subsidy expenditure on tariff slabs II (100-200 units) and III is more than twice the expenditure on slab I (below 100 units). Subsidies initially intended as initiatives of a welfare state, have transformed into an election freebie in recent years. Thus, the government spends the maximum subsidy on the consumers who have the capacity to use electricity the highest.
After 28 written communications from the Centre insisting on an increase in power tariff and 1 warning in the State Indebtedness Report, TANGEDCO raised its tariff after eight years in July 2022. The tariff shows a minimal increase in the price-less than ₹300 for slabs below 500 units. Almost 1 crore people continue paying subsidized rates. Farmers and hut owners get fully subsidized power. Tariffs for the first 100 units continue to be subsidized for all domestic consumers.
Tariff increase may reduce financial burden for TANGEDCO but may not be enough to cover the entire expenses, Roysharma added.
Various government departments such as the state water supply and drainage board, panchayats, corporations and municipalities owe ₹ 3,310 crores (approx.) to TANGEDCO as of December 2021. TANGEDCO has not replied to our queries on the status of recovery of these debts.
Aggregate Technical and Commercial (AT&C) losses stand at 18% for Tamil Nadu in 2021-22, according to the Ministry of Power. This includes loss during transmission, theft, inefficiency in billing and collection, and default in payment. Adopting appropriate measures to reduce AT&C losses could be one of the many solutions for TANGEDCO to improve its financials, said Roysharma.
Allegations of corruption on TANGEDCO go above thousands of crores currently. In the past four years, TANGEDCO has lost ₹ 1 lakh crores due to power purchase agreements with private suppliers, ₹ 1028 crores due to coal unloading and ₹ 6000 crores due to on purchase of low-grade coal, said NGO Arappor Iyyakam.
The Way Ahead
“Reducing Aggregate Technical & Commercial losses can make more power available for supply- ultimately increasing the income”, said Roysharma, on ways to reduce the discom’s losses. He said that demand control can be adopted in residential and commercial sectors by reducing consumption at peak timings or by improving efficiency of heating, ventilation, air conditioning and lighting systems.
Energy Efficiency Services Limited, a joint venture of public sector undertakings for implementing the National Smart Metering Programme, claims it has helped discoms achieve 95% billing efficiency and an increase in their average monthly revenue per consumer by 15-20%. “Such prepaid meters accurately charge the consumers and can accurately charge consumers reducing the human and mechanical errors in the collection procedure,” said Roysharma.
In early August 2022, Power Finance Corporation and Rural Electrification Corporation- under the Ministry of Power of the central government, extended ₹1.2 lakh crore to state discoms to clear their debt to power generation companies. The beneficiaries of the package are yet to be finalized.
More private players will enter the electricity distribution with new schemes like the Electricity Amendment Bill. The bill has been sent to the Parliamentary Standing Committee on Energy for further discussions.
The absorption of TANGEDCOs losses could have a strong fiscal impact on the state finances, stated the RBI report. The report also suggested that discoms should “undertake appropriate tariff revisions that reflect the underlying cost of power supply, keeping in view the rising cost of imported coal.”