State Power Distribution Companies' Return to Profitability
The state power distribution companies (discoms) have experienced a significant turnaround from a decade of financial losses, recording profits of ₹2,701 crore in the fiscal year 2024-25, compared to losses of ₹25,553 crore in 2023-24. This marks a potential success of reforms in the energy sector.
Key Factors Behind the Turnaround
- Implementation of Automatic Pass-through of Fuel Costs:
- Adopted by 30 out of 36 states and Union Territories in 2022.
- Allows discoms to recover major expenses, as fuel accounts for 70-80% of their average cost of supply (ACS).
- Increase in Smart Metering:
- Surged from 4,000 installations per day in FY23 to 115,000 per day in FY25.
- Contributed to reducing power theft.
- Revamped Distribution Sector Scheme:
- Linked access to discounted funds for infrastructure upgrades to measurable targets.
- Improved payment discipline through mandatory payment of government dues and subsidies.
Results of Reforms
- Narrowing ACS-ARR Gap: Reduced from 65 paise per unit in FY21 to just 6 paise in FY25.
- Reduced AT&C Losses: Dropped from 22.6% in FY14 to 15.04% in FY25.
- Timely Payments to Generating Companies: Due to changes in rules governing late payment.
Challenges and Future Outlook
- Accumulated Losses: Discoms have ended FY25 with ₹6.47 trillion in accumulated losses.
- Dependence on State Subsidies:
- States keep agricultural power rates low or free, increasing fiscal burden.
- Cross-subsidies raise tariffs for industrial and commercial consumers, affecting competitiveness.
- Future Reforms:
- The draft Electricity Amendment Bill, 2025 aims to address structural deficiencies.
- Proposes competition in the retail business as a potential solution.
While the progress is encouraging, sustained reform is needed to achieve long-term financial sustainability in India's power sector.
