Some parts of power sector look up thanks to govt steps

By DK Aggarwal

There has been an uptick in power use in the country recently, with demand rebounding to register a 6.7 per cent growth in first three months of 2019-20 against 5.05 per cent demand expansion in 2018-19. It crossed 183 GW for the first time in the first three months of 2019-20, not because of growth in the economy but due to the Saubhagya Scheme, i.e meant for last mile connectivity.


Although July IIP print showed that electricity, mining and manufacturing contributed to growth in factory output, electricity sector growth was 4.8 per cent against 6.6 per cent in July 2018.

It is expected that the government’s continuous push for industrial growth and infrastructure development will have a positive impact on electricity demand. Undoubtedly, India’s power sector is undergoing a significant change, redefining the industry outlook. And government has been working continuously to establish strong linkages between state and utilities companies. However, discoms have so far been the weakest link in the electricity value chain and poor financial health of discoms has led to payment delays to generation utilities and this has been a hindrance in the growth of the power sector.

Eventually, escalating losses of power discoms and other challenges are making the situation more challenging for the government to revive the sector and to fulfill its promise of universal electrification or 24 x 7 power supplies. Since July 2018, discoms have not been able to borrow from banks to pay generators because their working capital loan limits were reached. Now the government is in the process of rolling out a new tariff policy and UDAY 2.0 to address the hindrances.

But the question is: will it be of any help for the State Electricity Boards? Are these measures enough to tackle the mess that discoms find themselves in? To what extent will UDAY 2.0 be fruitful. Can the government truly provide free power and reduce financial stress and push the sector ahead.

The total outstanding of the discoms to generation companies as of July this year stood at Rs 73,425 crore, including an overdue amount of Rs 55,276 crore. In order to overcome the hurdle, the government has made mandatory for them to open letters of credit for getting supply from generation companies, excluding state government power plants from August 1, 2019. This should help reduce stress related to payments and provide some relief to power generation companies.