Cabinet Call: Private funds to steer discom bailout

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July 01, 2021 5:20 AM

Infrastructure creation in focus, Rs 1.5L cr to be used for installing 25 crore smart pre-paid meters

They believe SERCs are better placed to calculate the cross-subsidy since they would take into account factors that vary from state to state.

A new bailout scheme for power distribution entities (discoms) approved by the Cabinet on Wednesday hinges a lot on private funds to step up the distribution infrastructure. For the Rs 3-lakh-crore scheme to be implemented in the five years to FY26, the Centre will fork out Rs 97,631 crore, and the balance funds have to harnessed by the discoms via assorted means, including borrowings, but ideally through public-private partnership mode ventures, official sources told FE on condition of anonymity.

Of the funds to be mobilised, as much as Rs 1.5 lakh crore will be used for installation of 25 crore smart pre-paid meters, and these projects are likely to be executed through the PPP route.

Given that the last bid to revive the loss-making, debt-ridden discoms through the so-called UDAY scheme launched in November 2015 failed to achieve the goals after showing some initial promise in inculcating discipline in the discoms’ operations, the Centre has made funding under the new scheme contingent on the discoms committing to undertake structural reforms and infrastructure creation such as feeder separation and smart meters. The ides is to address core issues of billing-collection inefficiencies and pilferage efficiently. “Loss-making discoms will not have access to the scheme unless they work out a trajectory for loss reduction and get the respective state government’s approval for the same,” Union power minister RK Singh said.

Metering facilities at feeder and distribution transformer levels will be augmented simultaneously through PPP ventures.

The UDAY programme had targetted to bring down the aggregate technical and commercial losses (AT&C) of discoms to 15% by FY19 end, but that was not to be. AT&C losses now stand at 21% and the latest scheme aims to bring it down to 12-15% by FY25.

The new programme will subsume the existing central government schemes for discoms — such as the Integrated Power Development Scheme and the Deen Dayal Upadhyaya Gram Jyoti Yojana — which have similar targets to reduce losses through smart metering, feeder separation and general upgrade of distribution infrastructure. “One of the key distinguishing factors is the reforms-linked incentives for states depending on parameters such as infrastructure creation, upgradation of system, capacity building and process improvement, all of which will automatically promote competition,” Akshat Jain, partner at law firm J Sagar Associates, said.

The elusive target of reducing AT&C losses to 15% was first set in FY03 with the launch of the accelerated power development and reforms programme (APDRP), after the Centre introduced the first bailout package in 2001 through the financial restructuring plan (FRP) based on the Montek Singh Ahluwalia Committee recommendations. The 2001 package cleared discoms’ accumulated dues of Rs 41,473 crore and waived off surcharges worth Rs 8,300 crore on other arrears through a tripartite agreement signed by the Centre, states and Reserve Bank of India for a one-time settlement of state electricity dues.

The UDAY scheme helped reduce the interest burden of the discoms by around four percentage points as it allowed the states to convert loans worth Rs 2.32 lakh crore into bonds. Lower cost of funds helped in reducing interest outflow for discoms by about Rs 12,382 crore annually. After showing initial gains, discoms’ financial losses jumped 83% annually to Rs 61,360 crore in FY19.

Discoms ‘overdues’ — pending receivables of 45 days or more — to power producers at April-end stood at Rs 68,330 crore, down 9.6% from a year earlier, reflecting the utilisation of the PFC-REC loans under the Rs 1.25-lakh-crore liquidity infusion scheme announced by the Centre under the Atmanirbhar Bharat package to clear discom dues to electricity generators.

According to ICICI Securities, as much as Rs 75,555 crore had been disbursed to the states by March end under the PFC-REC scheme. Finance minister Nirmala Sitharaman said on Monday that states have been allowed Rs 1,05,864 crore of additional borrowing in FY22 as a part of the credit leeway announced in May 2020. States have already been allowed additional borrowing for four years starting FY22 up to 0.5% of GSDP annually subject to carrying out specified power sector reforms which include improving the discoms’ corporate governance and increasing intervention of IT-enabled infrastructure.

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