India power goals further out of reach as discom losses rise

Bloomberg

Losses by India’s power retailers are set to rise, reversing two years of declines they enjoyed since Prime Minister Narendra Modi’s government unveiled a plan to make the ailing utilities profitable.
Combined losses by state distributors that signed up for the federal government’s reform plan in the first nine months of the fiscal year rose to about $3.4 billion, a 62 percent jump from a year earlier, amid an increase in coal and power costs, according to Ajay Kumar Bhalla, India’s power secretary.
“We may not have achieved targets, but we feel we have done well,” Bhalla said, pointing to success installing new metres and improving billing and payment collections. “Structural
issues have been addressed, and we expect them to yield positive results.” Full-year earnings by the companies, known as discoms, could improve as most states are scheduled to make subsidy payments during the last quarter of the fiscal year, which ended in March, he said.
As part of Modi’s power industry revival plan, called UDAY, states took over 75 percent of the debt of their distribution utilities to help ease their debt burdens. The discoms were then given operational targets to reduce losses, while the federal government contributed with energy efficiency schemes, such as expanding the use of energy-saving of LED lights and deploying solar irrigation pumps. All but two of India’s 29 states have signed up.
The stalled recovery will sustain discoms as the weakest link in India’s electricity supply chain. Many are saddled with large debts from selling power below cost or from poor billing and collections. The financial mess impedes their efforts to serve low-paying consumers, such as rural homes and farmers, while also stifling their power purchases and ability to make timely payments to electricity generators.
State-run Coal India Ltd, the country’s biggest supplier of the fuel used for power generation, said average coal prices during the nine month period rose 11.6 percent. Power costs also increased as some generators had to import coal to bridge a domestic supply shortfall. Average spot electricity prices rose 28 percent from a year earlier to 4.08 rupees per kilowatt hour during the nine-month period, data from Indian Energy Exchange show.
The discoms’ inability to pass on such cost increases remains a key hurdle for revival of the electricity distribution sector, according to Debasish Mishra,
a partner at Deloitte Touche Tohmatsu in Mumbai. Distributors also continue to lose money on every unit of electricity sales. The UDAY reform plan aimed to eliminate these losses by closing the gap between cost of power supplied and realised revenues.