States’ borrowing leeway linked to power reforms

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Published: May 18, 2020 2:01:34 AM

Though the final framework of the prescribed reforms have not been finalised yet, the Centre is likely to direct states to reduce AT&C losses through improvement of the discoms’ corporate governance.

The new push to reform discoms follows the fragmentary success of the Ujwal Discom Assurance Yojana (UDAY) ― that ran between November 2015 and March 2019The new push to reform discoms follows the fragmentary success of the Ujwal Discom Assurance Yojana (UDAY) ― that ran between November 2015 and March 2019.

States will likely have to reduce aggregate technical and commercial (AT&C) losses of their power distribution companies (discoms) to 15%, allow open access to industrial consumers to procure electricity from sources of their own choice and implement direct cash transfers to provide subsidy to eligible power consumers to avail a part of the increased net borrowing permitted by the government on Sunday.

Though the final framework of the prescribed reforms have not been finalised yet, the Centre is likely to direct states to reduce AT&C losses through improvement of the discoms’ corporate governance and increased intervention of IT-enabled infrastructure to lower pilferage in power supply, sources in the power ministry said.

The new push to reform discoms follows the fragmentary success of the Ujwal Discom Assurance Yojana (UDAY) ― that ran between November 2015 and March 2019 ― with most states failing to meet operational targets under the scheme such as reduction in AT&C losses and elimination of the gap between cost of supply and revenue realised (ACS-ARR gap). Experts have pointed that a lack of disincentives for non-performance was one of the drawbacks of the UDAY scheme.

In an interview with FE in March, Union power minister RK Singh said, “Every time the Centre gives money to discoms to strengthen their systems and infrastructure, they add new equipment, but end up not maintaining the facilities, because they are making losses and are financially broke.”

Finance minister Nirmala Sitharaman on Sunday said the borrowing limits of states have been increased from 3% to 5% of the gross state domestic product (GSDP) for FY21, but part of the borrowing will be linked to specific reforms in four sector, including power distribution. Of the incremented borrowing limit, 1% (of GSDP) will be given in four tranches of 0.25%, linked to reform in each sector.

The last 0.50% can be borrowed only if milestones are achieved in at least three out of four reform areas. In this regard, the Union power ministry, in consultation with the states, is expected to come up with a monitorable performance index with state-wise targets and clear road map.

Under the ‘Atmanirbhar’ package, the government has already announced fresh loan of Rs 90,000 crore through PFC-REC to discoms, but with definite riders meant to ensure that the facility indeed comes to the aid of these tottering entities. The release of the first component of the loan will be contingent on the respective state government undertaking to clear departmental dues to its discom in three years, and putting in place a credible mechanism to release subsidies – meant for the consumers but routed through the discoms – in advance.

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