Government may set forth ₹3 trillion power supply reform

Finance Minister Nirmala Sitharaman may announce a ₹3 trillion electricity distribution reform programme in the Union budget to help reduce losses and improve the efficiency of power distribution utilities, a government official said.

The Reforms-Linked, Result-Based Scheme for Distribution—initially referred to as the Atal Distribution System Improvement Yojana—was approved by the Public Investment Board, a government body that examines the proposals, earlier this month.

The government is expected to contribute around ₹60,000 crore of the scheme’s corpus, and the rest may be raised from multilateral funding agencies such as the Asian Development Bank (ADB) and the World Bank, the government official said, requesting anonymity.

The new scheme will also subsume ongoing programmes such as the Integrated Power Development Scheme and the Deen Dayal Upadhyaya Gram Jyoti Yojana, and funds will be released to discoms subject to them meeting reform-related milestones

The scheme is aimed at helping power distribution companies (discoms) trim electricity losses to 12-15% from the present level and gradually narrow the deficit between the cost of electricity and the price at which it is supplied to ‘zero’ by March 2025. The reforms are also aimed at improving the reliability and quality of power supply.

“The Centre’s contribution can be met through the previous commitment of the ongoing schemes. There will be no additional financial burden on the government,” the official said.
The proposed scheme may also have a compulsory prepaid and smart metering component to be implemented across the power distribution chain, including in about 250 million households.

“We are at an early stage of discussion. There are no details that we can share at this stage,” a World Bank spokesperson said in an emailed response.
An ADB spokesperson declined to comment. Queries emailed to the spokespersons of the ministries of finance and power on late Monday evening remained unanswered.

Power discoms are the weakest link in the electricity value chain, plagued by low collection, increase in power purchase costs, inadequate tariff hikes and subsidy disbursements, and mounting dues from government departments.

According to government data, the aggregate loss of discoms was ₹85,000 crore in 2018-19, with the pandemic exacerbating the situation this year. India’s average aggregate technical and commercial loss is currently at 21.4%, one of the highest among the large energy-consuming economies.

The new scheme was discussed with the states during the state power and renewable energy ministers’ conference in July.

“Funds under the scheme would be released in proportion to the achievement by the discoms against the mutually agreed targets in the action plan,” according to a government document reviewed by Mint. The government is also trying to push a plan to privatize discoms in the Union territories and states.

According to the draft Electricity Act (Amendment) Bill to address the issues of India’s power sector solvency, the government has proposed to implement the direct benefit transfer scheme for better targeting of subsidies and instilling financial discipline at discoms.

Sitharaman, in her budget speech in February this year, had urged states and UTs to replace conventional electricity meters with prepaid smart meters in three years to reduce distribution losses, setting the stage for separating the carriage and content operations of electricity discoms.

Carriage refers to the distribution aspect and content to power. Smart meters minimize human intervention in metering, billing and collection, and help prevent theft by identifying loss pockets.

The proposed scheme is expected to work in phases and involves a compulsory smart metering ecosystem across the distribution sector—starting from electricity feeders to the consumer level. Subsequently, loss reduction measures such as separate feeders for agricultural and rural household consumption will be put in place.

According to Emkay Global Financial Services, pending dues of power discoms to generation companies rose 35% from a year earlier in October to ₹1.26 trillion.
Discoms in Rajasthan, Tamil Nadu, Uttar Pradesh, Karnataka, Maharashtra, Jammu and Kashmir and Telangana make up about 79% of total dues to power producers, the report said.

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