Link funding of state discoms to performance, PMO to Ministry

Anupam Chatterjee

The Prime Minister’s Office (PMO) has instructed the power ministry to come up with a mechanism wherein lending by government-owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to state-owned power distribution companies (discoms) would be contingent on states undertaking adequate distribution reforms.

The development comes at a time when discoms' dues to power producers stood at Rs 80,930 crore at the end of November 2019, up 45% from a year earlier with 89% of these being "over-dues" with payment default of 60 days or more. Discoms' financial losses stood at nearly Rs 28,000 crore at the end of FY19, up 88% year-on-year.

The PMO directive was mentioned in a meeting held on December 18, 2019, to review the progress in the power and renewable energy sectors under the chairmanship of Prime Minister Narendra Modi. The Union power ministry was also asked to initiate specific measures to ensure that states achieve the targets under the Ujwal Discom Assurance Yojana (UDAY) scheme, the minutes of the meeting, reviewed by FE, revealed.

States had missed the UDAY target of bringing down discoms' aggregate technical and commercial (AT&C) losses to 15% by the end of FY19. The losses stood at 21.3% at the end of September 2019.

Other actions directed by the PMO to reform discoms include the inclusion of private players in the discoms business "with appropriate options ie complete privatisation, concession based public private partnership, franchisee models, etc". It has also suggested amending the Electricity Act, 2003 to introduce ‘carriage and content’ - a project which has been in the back burner for quite some time - in order to segregate the business of operating local power transmission systems from distribution of electricity. It would effectively allow end-consumers to choose who they want to buy electricity from, similar to the way telecom and direct to home (DTH) television operators work.

India's power distribution sector, largely a state preserve, has not been very amenable to reforms. The government has already drawn up plans to address the issue of lack of competition in the electricity distribution segment by allowing multiple private franchisees in each area, while state-run utilities will continue to own the network. Though the franchisee model has been tried in states such as Maharashtra, Odisha and Rajasthan, it hasn't made much headway; the new model, the government thinks, is more workable, given the pricing freedom and various incentives being offered for the operators to meet operational parameters like elimination of pilferage and theft.

The power ministry was also asked to examine the possibility of introducing new regional electricity regulators and strengthen existing state regulators.