India's power distributors suffer chronic lack of investment

Distribution segment is utterly inefficient and swarming with T&D losses.

Prime Minister Narendra Modi's ambitious power sector expansion plans will be difficult to realise in full without significant reform of the power distribution segment, according to BMI Research. "We expect total power capacity to grow by nearly 80% between 2015 and 2024, with the distribution segment a crucial linchpin in supporting this growth," Georgina Hayden, analyst at BMI, said.

The distribution segment remains inefficient and characterised by high transmission and distribution (T&D) losses, restricted network coverage and the widespread lack of investment into the sector. Issues such as power theft and the ongoing discrepancy between retail electricity prices and the actual cost of generating and distributing power are major problems which present a sizeable risk to the expansion of the power and renewables sector in India.

As such, the announcement that the Indian Cabinet has cleared a USD7bn debt recast and reform package aimed at the Indian distribution companies (DISCOMS) is a positive step towards achieving PM Modi's power plan. The package, called UDAY (Ujwal Discom Assurance Yojna), aims to ease the capital crunch facing the country's Discoms - in part by encouraging state governments to take on up to 75% of their debt.

"The lack of financial capital and significant debt burdens of the Discoms has previously hindered the companies from buying electricity and distributing to consumers - and also acts as a barrier to independent power producers (IPPs) from entering the market, as there is a risk that the power generated from the IPPs will not be purchased. The scheme will focus on operational efficiency improvements to reduce losses in the system, including losses stemming from theft and inefficient infrastructure," Hayden said.