Govt. To Inject Rs. 90,000 Crore Into DISCOMS

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The move is aimed at helping the discoms clear their dues with gencos (or electricity generation companies), who in turn can clear their outstanding dues with suppliers, such as coal miners, easing some of the working capital woes of Coal India Ltd and contract miners.

WHY THIS WAS DONE?

It is due to the poor financial condition and revenue collection abilities of most state discoms.
This is despite several interventions, including a scheme called UDAY that was launched in 2015 to fix.
To fix the problem as upstream side (electricity generation) was drawing investments even as the downstream (distribution) side was leaking like a sieve.
First stage: Electricity is generated at thermal, hydro or renewable energy power plants, which are operated by either state-owned companies such as NTPC Ltd, NHPC Ltd, or private companies such as Tata Power, Adani Power, etc.
Second stage: The generated electricity then moves through a complex transmission grid system comprising electricity substations, transformers, and power lines that connect electricity producers and the end-consumers. The transmission segment is dominated largely by state-owned companies such as Powergrid Corp, which operate the grid.

Third stage: This last mile link is where discoms come in, operated largely by state governments. However, in cities such as Delhi, Mumbai, Ahmedabad, and Kolkata, private entities own the entire distribution business or parts of it.

Discoms essentially purchase power from generation companies through power purchase agreements (PPAs), and then supply it to their consumers.
The key issue with the power sector currently is the continuing problem of the poor financial situation of state discoms.
This has been affecting DISCOMs ability to buy power for supply, and the ability to invest in improving the distribution infrastructure.
Consequently, this impacts the quality of electricity that consumers receive.

In India, electricity price for certain segments such as agriculture and the domestic category (what we use in our homes) is cross-subsidised by the industries (factories) and the commercial sector (shops, malls).
This affects the competitiveness of industry.
There is the problem of AT&C (aggregate transmission and distribution losses).

Hence the intervention announced last week seeks to ensure time-bound funding assistance to discoms through PFC and REC, so that they can clear their bills.
In turn, generating and transmission companies in turn, can pay their suppliers such as Coal India Ltd or GAIL (coal and gas suppliers) and L&T or BHEL (equipment, civil works).