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MAY 07 2018

Modis Saubhagya scheme: Power supply to 3.63 crore households to cost Rs 32,000 crore to discoms

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 07th MAY 2018


The government’s stated plan to provide electricity connections to 3.63 crore households by December this year, if implemented, will raise the power distribution companies’ (discoms) supply cost by an annual Rs 32,200 crore or roughly a quarter. Since the discoms aren’t recovering their full costs from household consumers, the additional supplies under the Saubhagya scheme could add some Rs 3,800 crore to their annual losses, if all the new ones to be electrified have a consumption pattern like that of the average electrified household.

Without the subsidies provided by state governments, the extra losses could even be over Rs 7,100 crore.

The gap between cost of power supply and tariff for households is Rs 1.20/kwh (based on audited figures of FY16); in other words the cost is about 30 % higher than the tariff. Since an average subsidy of more than a tenth of the cost is provided by state governments (it is another matter disbursal of these sops is often delayed), the discoms’ cost recovery is around 88%. The 12% gap in recovery is mostly attributable to aggregate commercial and technical losses. FE has based its calculations on audited FY16 ACS-ARR gap of 65 paise/unit (the gap, thanks to steps taken to pare AT&C losses and the reduced cost of power procurement) has reportedly come down since to 29 paise currently.

Of course, the household sector, that consumes more than third of electricity supplies, is also cross-subsidised by industrial and commercial users of electricity. Tariffs on domestic consumers tariffs is on an average around 40% lower than that for industrial users of power. So the additional losses that discoms will have to incur due to 100% household electrification would be even higher if the cross-subsidy is reduced/dismantled. As reported by FE earlier, the power ministry is planning to cap cross-subsidy — additional tariffs paid by industrial and commercial consumers to subsidise households and farmers — at 20%. Currently, the cross-subsidy varies widely across states- it is as high as 60% in Tamil Nadu and 40% in Uttar Pradesh.

Discoms in the country reported combined losses of Rs 63,000 crore. Thanks to the UDAY scheme for revival of discoms, the losses are believed to have come down as AT&C losses came down from 24% in FY16 to 20% in FY17.

Having started to implement the Saubhagya scheme, discoms of Uttar Pradesh and Madhya Pradesh are flagging rising rural supply as a key contributor towards the recent rises in AT&C losses, which bucked a general trend. UP itself has a plan to connect 1.3 crore households, while Bihar (31.9 lakh), Odisha (30.8 lakh) and Jharkhand (28 lakh) have also lined up their plans under the Saubhagya scheme.

Kameswara Rao, partner, PwC, said that though the state power utilities will have an added financial burden from rural electrification, the gains from local economic growth and value-addition might offset it. The utilities could ward off the negative impact of comprehensive household electrification by cutting down power purchase costs and investing in renovating old plants. Having short-term contracts and energy efficient measures could help too. According to him, discoms have more digital and technical solutions now than before to cut down on AT&C losses.


Uttar Pradesh Madhya Pradesh Bihar Jharkhand Odisha Tamil Nadu Distribution Companies Tariff Energy State Power Utilities Price waterhouseCoopers Pvt. Ltd Power Distribution Rural Power Electricity ODISHA

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