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Q. Financial conditions of Power Corporation: Comment on financial position of state power utilities.
May 16, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently the Power Finance Corporation (PFC) has published fifth annual rating of state power distribution utilities for the year 2015-16. The report shows that 26 of the 41 rated power entities have posted improvement in aggregate technical and commercial (AT&C) loss levels during year 2015-16. The report suggests that there is considerable improvement in power companies but it is only work in progress, as the average cost of supply remains higher than revenue realised.

Issue-

  • The figures in the report suggest that average AT&C loss levels for the utilities have declined to 22.9%, from 24.8% in the previous fiscal year.
  • The state power utilities have been suffering from considerable loss of revenues, but no or little effort has been taken to end reckless giveaways, rampant theft and non-billing of power.

Analysis-

  • Though most of the companies are suffering from losses, but there exists wide variance. For example, the utilities in Uttar Pradesh posting huge loss levels of over 44%. Even for the better-performing utilities, say, those in Gujarat, with AT&C loss levels just above 10%.
  • There exists the rising problem of outstanding subsidies. Power subsidies now add up to over Rs 5,000 crore per year in Gujarat. The PFC report adds that while actual subsidy received has always been 100% of the budgetary allocation in the state, the budgeted amount is now lower than the actual claims, with the result that there is a spike in subsidy dues.
  • The precarious finances of the state distribution utilities does not augur well for the ongoing reform and balance-sheet clean-up plan under the ‘Uday’ scheme, for which bonds have been issued to clear huge outstandings.
  • Now it is time that government must seriously review state utility finances for the programme to be financially sustainable. The power utilities just cannot be allowed to become NPAs. Hence corrective actions must be brought into to enhance the financial position of power companies. 

Conclusion-

The financial condition of power companies is suffering from various causes. Though the recent PFC reports shows improvement in financial condition of state power companies, but speed of recoevry is very slow and not sustainable. Hence Central government should come with reformative measures to enhance the financial condition and make them sustainable for longer future.


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