The overall subsidy dependence of power distribution companies (DISCOMs) is estimated to increase by 7-8 percent to Rs.810 billion (~$12.53 billion) in the current financial year. The overall subsidy requirement is further estimated to constitute around 17-18 percent of the revenue requirement approved/estimated for the utilities for FY2018, according to a report by India Credit Rating Agency (ICRA).

The increase in the subsidy requirement is due to the subsidy and concessional tariff announcements in states during the pre-election period and continuation of subsidized nature of power tariff by state governments for certain consumer categories, even in case of upward revision in tariff by State Electricity Regulatory Commissions (SERCs). The report also stated that in case programs like Direct Benefit Transfer (DBT), which is being proposed in Bihar, were to be implemented, the direct subsidy dependence on the state government would reduce for the DISCOMs. Timeliness and adequacy of subsidy support from the respective state governments assumes critical significance from the DISCOMs’ liquidity perspective.

The increase in subsidy burden depends on the estimated higher level of consumption by the subsidized consumer categories. The dependence on subsidy support for DISCOMs in states such as Andhra Pradesh, Bihar, Gujarat, Karnataka, Haryana, Rajasthan, Tamil Nadu, and Telangana continues to be significant, ranging between 11-29 percent of the overall revenue requirement across the states.

In the past too, due to political considerations the DISCOMs in some states were forced to provide either subsidized or free power and this led to the financial downfall of DISCOMs. In the past government officials have told Mercom, “that even when they do not want to, due to political will they provide cheap power at a loss to the utilities.”

Mercom previously reported, an official at South Bihar Power Distribution Company Limited said, in Bihar we have to provide subsidized electricity to farmers due to politicians, and this ties our hands in terms of payments. An official at Jharkhand Urja Vitran Nigam Limited had told Mercom that politics plays a huge role in a state like Jharkhand where utilities have to let off dues or provide subsidies when asked.

Image Credit: By Leonardo.stabile, via Wikimedia Commons

Raj Prabhu Raj is a recognized thought leader in clean energy markets where his work has influenced policies worldwide. He has a deep understanding of regulatory policy and clean energy markets and his market and opinion pieces are regularly published on both and other leading publications globally. Raj is also a regular speaker and presenter on clean energy policy and finance topics at conferences worldwide. Raj attended the KLE College of Science in Bangalore, India for physics and chemistry, and holds a Bachelor of Science Degree in Hotel and Institutional Management from Johnson and Wales University, Rhode Island. More articles from Raj Prabhu.