Massive Losses seen for Indian Power Distribution Companies due to COVID-19 outbreak

The Indian distribution sector typically has a large component of state ownership over the companies, despite the unbundling of the Indian power sector almost 17 years ago. The sector remains mainly under the ownership of the Indian state and central governments. While the generation sector has been largely been privatized, the transmission and distribution sector are mostly government-owned. The distribution sector is heavily mismanaged, corrupt and even in the normal course of operations see billions of dollars in losses every year as the state governments use them as political carrots to get votes by providing cheap power. The problems of the Indian distribution sector are well known and even the solutions are known – Privatization, however, things move slowly and cumbersomely due to massive vested interests who makes millions of dollars out of the mismanagement of power distribution in the country.

With the coronavirus, the woes of the distribution utilities are set to increase manifold due to some critical issues:

1)      As many commercial and industrial establishments are closed, their power requirements have fallen to zero. As distribution utilities typically charge them much higher rates to cross-subsidize the low-end residential customers, the revenue loss will be quite large and much higher in volume as compared to the number of overall consumers.

2)      The billing and collection efficiency is also set to go for a toss as many of the electrical meters are manual and the distribution company officials are not going to read those meters due to the COVID induced national lockdown.

3)      Many customers will not be paying any money to the distribution utilities due to the economic issues arising from the COVID crisis. People are getting affected across the country with their businesses having no revenues, job losses, and salary cuts. It is being estimated that the unemployed have jumped to over 20% in the last one month as economic activities have ground to a halt.

Also, read Comprehensive COVID-19 Impact on Indian Clean Energy Sector

The problems of these distribution utilities will flow across the power sector as these companies will not be able to pay the generators who supply the power, who in turn will not be able to pay their vendors and suppliers of raw material such as coal. While the government has allowed a moratorium on payments, the money will ultimately have to be paid by the distribution utilities, and given their woeful state of finances, another relied package may be required from the governments who are already fiscally strained. Also given the crisis, the power requirements and the payment capacity of consumers may remain impaired for a year or more which will lead to additional strains across the whole power ecosystem. The only solution is a faster reform of the whole mess of the power sector in India in order to better use the resources for more productive uses