Strengthening distribution utilities at the ground level

The Ministry of Power plans to reduce the fixed charges collected from state DISCOMs by central public sector enterprises (CPSEs). Industry leaders discuss how this will affect investments in the power transmission and distribution sector.

For the state DISCOMs, both the power sales and collections have been severely impacted for at least two billing cycles now due to the prevailing pandemic situation. Power sales have reduced significantly due to the reduction in offtake by industrial and commercial consumers, and the collections have also come down due to impact on the metering, billing and collection activity, a large part of which is still manually done in several states. The state DISCOMs, therefore, need support such that they can emerge out of this crisis and continue to serve their consumers. The economic package under Aatmanirbhar Bharat Abhiyan provides not only the much needed liquidity infusion to DISCOMs to clear their past outstanding but also promises relief to the end consumers. The latter has been proposed through deferment of the fixed charges on the generation not scheduled by the DISCOMs during the lockdown period and an additional 20-25 percent discount on all the fixed charges billed to the DISCOMs. The decision would help in reducing the power purchase cost of DISCOMs and provide an immediate respite to the consumers. Both the stimulus and relief package were crucial for DISCOMS to recover from the current setback and to stride forward.

A good initiative to reduce DISCOMs’ power purchase cost
Prabhajit Kumar Sarkar, Managing Director & CEO, Power Exchange India Limited (PXIL)

The Power Ministry’s initiative to allow reduction in fixed charges will certainly support the financially stressed utilities, especially when power demand from commercial and industrial customers has seen a significant dip. While this measure is, in some ways, a setback for CPSEs’ revenues, it will help utilities to manage their financial health. In fact, in the recent past, several state distribution utilities have also stepped up procurement through the Exchange and made significant savings which contributed to their financial liquidity. The Exchange market will continue to play a key role in enhancing overall efficiency and sustainability in the sector.

Reduction in fixed charges to improve financial health of utilities
Rohit Bajaj, Senior Vice President and Head – Business Development,Indian Energy Exchange Limited