Addressing the Payments Problem of Electricity Distribution Licensees

A perennial problem faced by suppliers to electricity distribution companies (licensees) (DISCOMs) in India is the payment delays. There has not been any year wherein the DISCOMs have been in a position to pay to suppliers within the due date of their bills. The principle reason noted by the Central Electricity Authority (CEA) in its report of the committee on delayed payment by the DISCOMs to the generation companies (GENCOs)/independent power producers (IPPs) (CEA 2019) is that the revenue realised by the DISCOMs is much lower than their costs, as captured by the gap in average cost of supply (ACS) and average revenue realisation (ARR). To mitigate the impact of gap between revenue and expenditure, the DISCOMs either try to take loans to meet the costs or defer some expenditure, including payments to the generating companies. The report noted that the major factor that contributes to the ACS–ARR gap is the absence of periodic tariff revision. Even when the tariff is revised, the inc­rease is not commensurate with the legi­timate costs.

The report also observed that the DISCOMs face severe liquidity problem as the annual revenue requirement and tariff determination process is on accrual basis, while in reality the cash flow is much less. This assessment of the CEA is not new, and to support the DISCOMs, the Government of India (GOI) has introduced, from time to time, various pro­gram­mes like accelerated power dev­e­lopment programme (APDP), accelerated power development and reforms progr­amme (APDRP), restructured accelerated power development and reforms progr­amme (RAPDRP), Integrated Power Deve­lop­ment Scheme (IPDS), Ujjwal DISCOM Assurance Yojana (UDAY), and, recently, the Revamped Distribution Sector Scheme (RDSS)—a reforms-based and results-linked scheme. All these programmes, des­pite being in vogue since nearly two decades, fell short of achieving the desired outcomes in terms of improved aggregate technical and commercial (AT&C) losses and better finances of DISCOMs. It needs to be seen how the latest ref­orms package works out.