Reforms Drive UP Power Corp’s Biz Agenda

RARELY DOES A COMPANY logging the highest top line in a sector have to cut a sorry figure about profitability. That is the case with Uttar Pradesh Power Corporation Ltd. (UPPCL), a power distribution company, which features in Fortune 500 India for the first time on the back of ₹90,272 crore revenues, including subsidies, in FY23.

UPPCL has six divisional distribution companies under its fold-Dakshinanchal Vidyut Vitaran Nigam, Madhyanchal Vidyut Vitaran Nigam, Pashchimanchal Vidyut Vitaran Nigam, Purvanchal Vidyut Vitaran Nigam, Lucknow Electricity Supply Administration and Kanpur Electricity Supply Administration, along with Uttar Pradesh Power Transmission Corporation, a state transmission utility. The parent procures power from government-owned power generators, Uttar Pradesh Jal Vidyut Nigam, central power generator NTPC and independent power producers.

However, despite the impressive revenue numbers, the company is facing colossal losses. This speaks volumes about the state of power generation and distribution companies in the country, which operate amid massive transmission & distribution (T&D) losses, huge dues and little or no pricing power. UPPCL’s total income rose 12.3% to ₹90,272 crore in FY23 from ₹80,332.67 crore in FY22 and 33.5% from ₹67,615 crore in FY21.

This makes it one of the highest revenue earners in the industry. UPPCL Chairman Ashish Kumar Goel says several factors have contributed to strong revenue growth, including expansion of customer base, initiatives such as installation of smart meters and a number of one-time settlement schemes for collection of dues.

“In last six years, revenue collection by UP power discoms (distribution companies) has shown a significant improvement. The total revenue collected has doubled from ₹29,594 crore in FY17 to ₹59,374 crore in FY23. With major increase in consumer base, revenue collected from households has increased by around 160%. Revenues from industry and commercial consumers have increased 40% and 80%, respectively,” Goel tells Fortune India.

The corporation has also taken steps to plug systemic leakages. “AT&C (aggregate technical & commercial) losses of UP discoms have reduced from 40.79% in FY17 to 22.01% in FY23, the highest ever reduction of around 19% in six years. UP discoms have been able to achieve this despite no tariff hike in last four years. They have added over 1.47 crore consumers in past six years, most of them rural, and increased rural supply from 16 hours to 18 hours a day,” says Goel.

Growth in revenue has come on the back of several initiatives. Goel says the corporation improved operational efficiency by roping in centralised billing agencies, metering 100% feeders for better accounting and engaging self-help groups, primary agriculture credit societies and public distribution shops for revenue collection and increasing reach. “We have achieved metering of around 60 lakh un-metered consumers and installed 111 lakh smart meters, the highest in the country, for efficient billing and timely disconnection in case of non-payment of bills,” says Goel.

The corporation is also trying out new-age payment technologies. “For the first time, meter readers have been allowed to collect revenue through pre-paid wallets. We have introduced a beat model to monitor movement of meter readers for improving billing efficiency. Various online payment services have been enabled, including net banking, debit card, credit card and e-wallets,” he says

However, bottom line remains a concern. Losses almost trebled from ₹5,577 crore in FY22 to ₹15,859 crore in FY23. The company had posted a loss of ₹11,852 crore in FY21. Reasons include power pilferage, mounting dues from government departments and no independence to set tariffs.

The question is-what will be UPPCL’s strategy to come out of the red? Since electricity tariff is a politically sensitive subject, distribution companies lack pricing power. Goel categorically says a tariff hike is out of question but lists strategies for beefing up finances. “UP discoms are committed to achieving the AT&C loss trajectory of around 16.4% by FY25 through improvement in billing systems and revenue collections. Optimising power purchase cost by advance planning based on estimated demand growth for next ten years is also part of the plan. Based on current estimates, UPPCL is planning to tie up around 10,000 MW low-cost solar and wind power. UPPCL is also in process of issuing the tender for procuring hydro power to meet peak demand. It is tying up pump storage and battery storage capacities for managing peak power demand. We have signed MoUs for new thermal capacities of around 5,160 MW which will be commissioned in next five-six years,” says Goel.

The target of reducing AT&C loss has been set under the Revamped Distribution Sector Scheme that was launched by central government in July 2021 to improve quality and reliability of supply to consumers through a financially sustainable and operationally efficient distribution sector. The scheme has an outlay of ₹3,03,758 crore with estimated Central government budgetary support of ₹97,631 crore. The scheme aims to reduce AT&C losses to 12-15% by FY25.

The corporation is commissioning cloud-based revenue management system and implementing IT solutions for managing operational data infrastructure in real time, says Goel. In August, Goel had set up teams of experts to visit three states, Haryana, Madhya Pradesh and Gujarat, to study the best practices of leading power distribution companies. The teams have submitted their report, covering energy accounting systems, revenue collection channels and processes, energy audits, use of IT applications/systems and reforms in methodology for addressing consumer complaints.

Meanwhile, in a move that is likely to provide a fillip to UPPCL’s revenue, the Yogi Adityanath government has rolled out a one-time settlement scheme with a 54-day window from November 8 to December 31 in three phases. Those coming forward early will get more benefits. Also, UPPCL is likely to announce a cash reward for those who tip off the corporation about pilferage. The move is expected to give a fillip to the Bijli Mitra initiative under which a lot of people are already giving information about power theft in their areas. However, one of the issues that the state government needs to address urgently is outstanding dues of its departments. According to data, just water works and sewage and public lighting owe the corporation ₹10,688 crore and ₹4,167 crore, respectively. The Department of Agriculture owes ₹6,814 crore. UPPCL’s total outstanding dues add up to ₹50,000 crore. It is clear that the company can be turned around if these reforms succeed.

At least the intent is clear if one goes by the vision statement of the corporation. “With increasing volume of activities and specialisation in generation, transmission and distribution, and with a view to improve the performance of these sectors, it has become essential to run them as separate profit centres. These profit centres would subsequently be corporatised by establishing thermal generation corporation, hydro generation corporation and transmission and distribution corporation,” it says.

That said, it will take political will, more than professional skill, to do so.