JAM trinity to help improve subsidy delivery efficiency in power sector by Umesh Agrawal, Director – Energy, Utilities & Mining, PwC.
One of the significant issues impacting the electricity sector is the fact that electricity tariffs are designed to address the issue of affordability of different customer segments so that everybody has access to power at tariffs as per his affordability. This has led to tariffs for some category, say, hoardings and advertisements significantly higher that other consumers. Additionally the tariffs for bulk customers follows an inverse economic logic. This possibly worked fine in a situation of deficit. Now with increasing the levels of access and prevailing surplus situation creates an opportunity to reform the tariffs by developing processes for targeting the subsidy delivery mechanism in such a way that they are delivered to people who need and create efficiency in the system. In this context, the experiment of the government with respect to LPG and benefits under other government schemes have taught us several lessons and we think it is time we extend the concept of using Jandhan accounts, Aadhar and Mobile Trinity to electricity supply to improve the subsidy delivery mechanism. This will ensure that only the defined consumers receive subsidy and that too directly in their accounts. This will ensure that:
- Subsidy is targeted and directly reaches those who need the same. Prevents leakage and improves the subsidy delivery mechanism
- End user develops more concerns for bringing about efficiency in use of energy – Helps develop an efficient economy and there are natural incentives for subsidised groups to use energy efficiently. - Helps utilities become more independent entities running on commercial lines. Once the social responsibilities of utilities are directed and handled by the government directly, the utilities will become purely for profit commercial organisations respon- sible to the shareholders and that will be a significant change to the general outlook towards the state owned electricity utilities. Their ability to develop internal expertise and bringing in external expertise to benchmark the business processes with the best in the world will improve significantly. Further the envisaged vision of Digital India makes this transformation much easier.
More importantly, such an initiative will help distribution utilities turnaround perpetually and we may need another round of UDAY after a few years. Heathy distribution companies will also help state government monetise their holdings and use the proceeds for other sectors and initiatives of the state which has more welfare benefits.
UDAY scheme of the government of India is a powerful tool to initiate the turnaround of the distribution companies and the same is reflected in the number of states who have joined the scheme, even though, joining the scheme is voluntary. The scheme helps reduce the debt burden of utilities and creates an environment and roadmap for a turnaround of utilities. The superior health of distribution utilities can significantly help impact all the stakeholders in the sector – investors, lenders and the consumers. While financial turnaround is fine, bringing benefits of Jandhan Adhar Mobile to the electricity sector is crucial to ensure sustainable performance of the sector.
The author is Director – Energy, Utilities & Mining, PriceWaterhouseCoopers (PwC) Pvt Ltd