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Power distribution loss level still remain high across many states; with all India average aggregate technical & commercial (AT&C) loss at 27% : ICRA

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Utilities in states of Jammu & Kashmir, Bihar, Uttar Pradesh, Odhisa and Chattisgarh have significantly higher loss levels as compared with national average

Oct 29, 2014: ICRA has observed an improvement in distribution loss levels for discoms in 12 states in the period FY 2007 - FY 2013 while a deterioration or limited progress in reducing loss levels has been seen in five states and in the remaining two states, loss levels have remained almost unchanged. Despite this improvement, the distribution losses remain relatively high in a majority of the states - with discoms in 10 states showing losses higher than 20% loss in FY 2013. Discoms which have seen a deterioration or limited progress in reducing loss levels are in the states of Uttar Pradesh, Jammu & Kashmir, Bihar, Chhattisgarh& Odisha – where the loss levels in FY 2013 remained significantly higher as compared with the national average.

ICRA estimates average all India AT&C loss levels in the range of 27% for FY 2013. This is significantly higher than what is targeted and points to a considerable scope for reduction in loss levels.

SERCs in 11 of the 19 states under study have approved distribution loss trajectory till FY 2016. SERCs while approving tariff determination have stuck to pre-approved loss trajectory even though actual loss levels remained much higher and this in turn has led to disapproval of a significant revenue gaps as projected by utilities in tariff petition filings in many states. Even for discoms where such deviation is low, under-recovery in power purchase costs arise because of AT&C loss levels being higher (3-10%) than the approved loss levels.

With respect to capital expenditure approved by SERCs for strengthening of the distribution infrastructure, aggregate capital expenditure is estimated at about Rs. 440 billion in FY2015 which represents an increase of 8% over the previous year. Besides the distribution strengthening schemes, utilities in eight states have already implemented feeder separation schemes. The common factor between these eight states, where the feeder separation program has been taken up, pertains to high proportion of agriculture consumption (ranging between 25 to 35%) in the overall electricity consumption mix and also, high level of unmetered agriculture consumption. However the results from the program have remained mixed with some of the states achieving both operational and financial improvement (like Gujarat), where there has been a decline in distribution loss levels as well as improvement in profitability of the utilities. However, the loss levels still remain significantly high for utilities in states such as Haryana and Madhya Pradesh. Also, despite achieving a reduction in loss levels by the utilities in Rajasthan, the financial performance of the utilities has deteriorated owing to increased agricultural consumption and consequent dependence on state subsidy support, which also has been irregular and inadequate, in addition to reasons attributed to tariff inadequacy.

The distribution segment of power sector is predominantly state owned and the private owned distribution utilities account for about 7-8% of the energy demand in the country. As against the state-owned utilities, operational efficiency levels for most of the private owned distribution utilities have remained relatively better which is largely on account of favorable demographic profile with limited mix of agricultural consumption, implementation of adequate capex for strengthening of distribution network and better operational focus & practices followed.

On an all India level, improvement in AT&C loss level in a timely manner remains extremely critical for financial viability of the distribution utilities, given that median cost coverage ratio for distribution segment remains below 0.9 times for FY 2013. ICRA estimates, for every 1% reduction in the all India AT&C losses for the sector, keeping average retail tariff (estimated at Rs. 4.3/unit excluding subsidy, for FY 2013) at similar level, the cash gap per unit sold [(Revenue collected incl. of subsidy received - Cost of power supply)/Units Sold] is estimated to reduce by about 7 paise/unit which represents a reduction in cash losses by about 5% (i.e. Rs. 39 billion) from the level in FY 2013 for the sector. Also for a distribution entity with loss level of say 25%, a 1% loss reduction leads to cost saving of about 11-13 paisa/unit, which results in a relief of 2.2% on the retail tariff assuming cost of power supply remains the same

Notwithstanding this, adequacy of tariff revision remains crucial for improvement in the financial position, given the upward pressure on cost of power supply due to rising trend in cost of power purchase associated with increasing dependence on costlier thermal fuel sources.