Almost 20 states expressed interest in benefitting from power sector reforms in 2020 on account of incentives by way of increased market borrowing space, Ministry of Power (MoP) recently said in an official statement.

The Ministry of Finance launched a programme in June 2021 to allow additional borrowing space to state governments on the condition that they undertake and sustain specific reforms in the power sector. REC Ltd is the nodal agency for the scheme’s implementation.

The additional borrowing limit permitted for power sector reforms is 0.5% of the Gross State Domestic Product (GSDP) of the respective state. This being the first year of the current version of the scheme, the requirements of reforms and actions has been kept less onerous, with the bar raised for future years, pushing the states towards higher level reforms, says MoP.

Under the scheme, the states may commit to reforms and be eligible for increased borrowing space of ~Rs. 80,000 Crores. This scheme seeks to incentivise states to commit to reforms and in turn, take benefit in the form of availability of enhanced financial resources.

This financial year, almost 20 states have already shown interest in taking benefit under the scheme, confirmed MoP. Based on the recommendations of the ministry in respect of such a proposal from Andhra Pradesh, the Ministry of Finance had accorded their approval and the state has already availed borrowings of more than Rs 2100 Crore to partly utilise such allowed additional borrowing space.

Proposals of Manipur and Rajasthan are also under active consideration at Ministry of Finance, both of which may be eligible for the maximum limit of 0.50% increased borrowing space, based on reforms carried out by them in the power sector. Rest of the states are also submitting their proposals.

Last year, a slightly different version of this scheme was made applicable, which enabled 24 states to take benefit of the same and avail additional borrowing limits of more than Rs. 13,000 Crore. Based on the learnings from bringing out such a scheme and the reception it received from the states, the framework was further revised this year to put forth incremental reform requirements that the States need to commit for, in their power segment, stated MoP.

A number of provisions in the scheme, such as timely publishing of annual accounts, filing of tariff petition, issuance of tariff orders, unit-wise subsidy accounting, publishing of energy accounts, and adopting newer innovative technologies etc., remain common with the Revamped Distribution Sector Scheme, which is a “reform-based” and “result-oriented” scheme by MoP, whose end objective is said to be to make available 24×7, quality, reliable and affordable power to all consumers.

Thus, the funding under Centrally Sponsored Schemes has now been made contingent upon the reforms that any state is willing to undertake and provide corresponding financial support to the progressive State Governments in being able to achieve this, added MoP