Gap Between DISCOMs’ Energy Cost and Revenue Narrowed to ₹0.28kWh in FY 2020

The Union Minister R.K. Singh said in Rajya Sabha that the gap between the Average Cost of Supply (ACS) and the Average Revenue Realized (ARR) at the national level reduced from ₹0.47 (~$0.006)/kWh in FY 2015-16 to ₹0.28 (~$0.004)/kWh in FY 2019-20.

The gap between the revenue and cost per unit/kWh is one of the critical performance parameters for power distribution companies. A wider gap reflects that the distribution companies are under loss as their revenues are far lower than their expenditure.

Earlier in June this year, the Union Finance Minister Nirmala Sitharaman had announced the ‘Economic Relief from Pandemic’ package and declared several sops for power distribution companies (DISCOMs), including ₹3.03 trillion (~$40.82 billion) outlay for reform-based result-linked power distribution program.

The program aims to improve the quality and the reliability of power supply to consumers through a financially sustainable and operationally efficient distribution sector. The plan is to reduce the aggregate technical and commercial (AT&C) losses across India to 12-15% and eliminate the gap between the average cost of supply and the aggregate revenue requirement by 2024-25.

The minister added that all state-owned distribution companies and state and union territory DISCOMs, excluding private sector DISCOMs, will be eligible for financial assistance under the revamped distribution sector program.

According to the data released by the Ministry of Power, the ACS-ARR gap narrowed in 18 states/union territories between financial year (FY) 2016 to FY 2020. On the national level, the gap narrowed from ₹0.47 (~$0.006)/kWh to ₹0.28 (~$0.004)/kWh from FY 2016 to FY 2020.

In reply to the question, the minister shared the state-wise data regarding the narrowing of the ACS-ARR gap and the current status of the states. The data is based on the subsidies booked by the states to the central government.

The ARR-ACS has considerably widened in Arunachal Pradesh, Meghalaya, Nagaland, Puducherry, and Tamil Nadu, which is concerning.

On the positive side, the ARR-ACS gap has narrowed significantly in Andhra Pradesh, Jammu & Kashmir, Madhya Pradesh, Mizoram, and Sikkim.

Only six states have registered revenues more than the cost of power supply. These include Assam, Gujarat, Haryana, Himachal Pradesh, Rajasthan, and West Bengal.

In April last year, the Ministry of Power had proposed amendments to the Electricity Act 2003 to improve the health of DISCOMs, including direct benefit transfer and cost-reflective tariffs, among others.