Dismal discos

You can come up with even fancier way of circular debt settlement next year, can be craftier in the next base tariff ‘rationalization’ exercise due very soon, and can even think of new ways of adding more surcharges and levies on electricity consumption – you will still start the day with a colossal circular debt staring right in your eye. In today’s times – that starting point could be north of Rs400 billion.

The regulator has recently issued Performance Evaluation Report FY23 for Distribution Companies –and it reads like the 10th sequel to a horror novel. For the regular readers, it is just worse numbers in most cases and slight improvements in a few – with the recipe for disaster staying constant.

Here is how it goes. The government does not let go of the discos’ control, the authority sets ambitious efficiency targets, no fear of consequences leads to no incentive for improvement, the bad ones remain bad (or go worse), the good ones have stayed good for a while that there is no more room for improvement, the national average tariffs keep getting higher, and that feeds into another cycle of higher efficiency related losses. Rinse. Repeat.

The T&D losses have been really sticky for quite some time, as the good-performing discos are now close to universally accepted T&D loss levels in single digits. The ones at the other spectrum seem to have stuck in a loop with little to no improvement seen for the best part of last five years. The T&D losses continue to breach the allowed limit by over 4 percentage points. With ever-rising tariffs – the financial burden increases.

Much worse is the collection problem. The tariff exercise assumes 100 percent recovery. The year gone by returned the lowest recovery in ten years at 86 percent. Combined, the two problems are worth Rs402 billion. Mind you, these numbers are till end June 2023. Massive tariff adjustments have taken place since – and much of the same in terms of losses in percentage terms and much higher in rupee terms is in store for FY24.

Privatization of discos is a no-brainer, but that will not be a magic wand. The issues are complicated with technical, security and governance-related affairs overlapping. Political patronage has been linked to high inefficiencies and with enough documented evidence from the past. Provincial governments will have to be made responsible in some way for the mess. Millions of honest paying consumers across the country must not continue to pay for the ill-doing of a few.