Grants under Rs 3.1-lakh-cr scheme to become loans if targets are unmet, Bill to allow multiple discoms in same area in current session

Also, to prevent new players from cherry-picking lucrative supply circles, the states will have to create a ‘cross-subsidy fund’ so that discoms do not get undue advantages owing to higher composition of industrial and commercial consumers in their respective areas, Singh said.

With no amount of government largesse or fiscally expensive financial re-engineering producing the desired result of salvaging the electricity discoms from being perennial defaulters caught in debt trap, the government has decided to make the terms for the latest scheme announced in the Budget FY22 stricter and non-bendable. It is also fast-tracking a plan to usher in real competition in the electricity distribution space.

The promised grants to state-run discoms under the Rs 3.1-lakh-crore scheme unveiled in the Budget would get converted into loans, unless they met the parameters aimed at reducing their sticky losses, Union power minister RK Singh told FE. The minister also said he intended to introduce a Bill to amend the Electricity Act in the ongoing session of Parliament, to enable operations of multiple discoms in any area and end the current monopoly regime in the power distribution business.

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Also, to prevent new players from cherry-picking lucrative supply circles, the states will have to create a ‘cross-subsidy fund’ so that discoms do not get undue advantages owing to higher composition of industrial and commercial consumers in their respective areas, Singh said. State electricity regulators will have to clearly quantify the cross-subsidy component, while determining electricity tariffs for every category, which will determine exactly how much a discom in a ‘lucrative’ area will have to pay to the new fund, the minister added.

As per the Budget announcement, the new scheme, the latest in a series of four over the last two decades starting with the accelerated power development and reforms programme (APDRP) unveiled in 2001, is contingent on the discoms committing to undertake structural reforms and infrastructure creation such as feeder separation and smart meters, to address the core issues of billing-collection inefficiencies and pilferage that cripple the sector.

“As a disincentive for not complying with the agreed loss reduction targets (under the new scheme), we will bring in a provision that if the discoms fail to carry out the desired action, the grants disbursed will be converted into loans,” Singh said. The new scheme is slated to reduce aggregate technical and commercial (AT&C) losses — an indicator of pilferage — after the earlier Ujwal Discom Assurance Yojana (UDAY) programme failed to achieve its target to bring down these losses to 15% by FY19-end. AT&C losses now stand at 25%.

Of the Rs 3.1-lakh-core financial assistance, envisaged over five years under the scheme, 60% will be grants, 30% loans (to be facilitated by the Centre, possibly from the likes of PFC-REC), and the balance 10% will come from state governments. The new proposal is to add a caveat that the 60% grant component would be converted to loans on the discoms’ books if they fail to meet the targets.

Discoms’ financial losses jumped 83% annually to Rs 61,360 crore in FY19 and seen to have risen further since.

Even though details of the new scheme is still being worked out, Singh said: “If loss-making discom will not access the scheme unless it works out a trajectory for loss reduction and get the respective state government’s approval for the same.” the minister noted. The disbursements will be linked to the adherence to the loss reduction trajectory and there will be annual reviews to assess the discoms’ performance.

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Regarding the delicensing of the distribution sector, the Union power ministry has already discussed the proposition with all the states, industries and power regulators. “The regulator will fix a ceiling tariff and discoms will be free to charge anything below that, so there will be competition on the basis of price and service quality,” Singh said. The entity which own the distribution net work will have to be paid wheeling charges by others who use the network. The fixed charge component of the tariff payable to generators under existing power purchase agreements would be shared among the discoms in proportion to the connected load of each entity. The energy charges would have to be paid according to the volume of electricity supplied by each discom, the minister said.

Given that contingent liabilities arising out the large outstanding debt and rising losses of electricity discoms remained an intractable problem and an unmitigated risk to states’ finances despite a series of financial bailout packages, ‘genuine reforms’ in the power sector could not wait any longer, 15th Finance Commission chairman NK Singh said recently. Unbundling of the state power utilities was still an unfinished task, he noted, and added that the issue of ‘regulatory capture’ – state electricity regulators being hamstrung by the political executive –, needed to be addressed on priority, along with a fast-tracking of privatisation of discoms.

Under the Rs 1.25-lakh-crore liquidity infusion scheme announced last year, as much as Rs 46,074 crore has been disbursed to all the discoms by PFC-REC as at the end of January 2020. The sanctions include Rs 30,230 crore to Tamil Ndu, Uttar Pradesh (Rs 27,432 crore), Maharashtra (Rs 14,310 crore), Telangana (Rs 12,652 crore), Karnataka (Rs 7,247 crore) and Andhra Pradesh (Rs 6,835 crore).