Ask anyone what is it that is stopping power sector reforms from happening despite the repeated attempts being made by successive governments and the answer you will get is lack of ‘political will’. Yes, Power Minister RK Singh has been on a mission mode, but you can lead a horse to water, you can’t make it drink. Therefore, Singh’s success will depend on how the States will respond to the Centre’s latest attempt to strengthen power distribution utilities (Discoms).
The Centre has recently approved the Revamped Distribution Sector Scheme — A Reforms-Based and Results-Linked Scheme — with an outlay of ₹3,03,758 crore and a Gross Budgetary Support of ₹97,631 crore from the Centre over a period of five years from FY 2021-22 to FY 2025-26. The scheme allows the Discoms the flexibility to draw up their modernisation plans keeping in view their own specific requirements. The assistance is conditional on the reforms being carried out.
What is notable here is that the scheme is not based on a one-size-fits-all approach. States can work out their own plans. The scheme seeks to improve the operational efficiencies and financial sustainability of all Discoms/Power Departments (excluding private sector Discoms) by providing financial assistance to Discoms for strengthening of supply infrastructure based on meeting pre-qualifying criteria as well as upon achievement of basic minimum benchmarks of reforms by the Discom evaluated on the basis of agreed evaluation framework.
The Scheme aims to reduce the AT&C (Aggregate Technical & Commercial) losses to pan-India levels of 12-15 per cent and ACSARR (Average cost of supply and Average cost of revenue realized) gap to zero by 2024-25.
Under the scheme, eligible Discoms would be provided financial support for upgradation of the Distribution Infrastructure and Smart Metering Systems for the network as well as prepaid smart metering systems for consumers. The funding for works other than prepaid Smart Metering and System Metering would be contingent upon Discoms meeting the prequalifying criteria and achieving at least 60 per cent marks on the result evaluation matrix formulated on the basis of action plans for loss reduction and work plans of Discoms agreed upon by the Centre.
But, wasn’t efficiency a criteria for UDAY — Ujwal DISCOM Assurance Yojana — too? According to officials, earlier fund flow from the Centre was based on progress of a project, but now it will be based on how much the Discoms achieve on the set parameters. Guidelines for the scheme should be out soon. Besides, the Power Finance Corporation (PFC) and the Rural Electrification Corporation (REC) have been nominated as nodal agencies for the scheme’s implementation and the grant will be channelised through them.
According to the Power Ministry, it has assessed the performance of the participating States under the UDAY. The Aggregate Technical & Commercial losses at all India level have reduced from 23.70 per cent in FY 2015-16 to 21.83 per cent in FY 2019-20. The gap between Average Cost of Supply (ACS) and the Average Revenue Realized (ARR) has also reduced from ₹0.47 per Unit in FY 2015-16 to ₹0.28 per Unit in FY 2019-20.
Under the latest offering, a Discom which is making losses will not be able to access funds under this Scheme unless it draws up a plan to reduce the losses, lists out the steps it will take to reduce such losses and the timelines thereof and get their State government’s approval, and file them with the Centre.
Besides, under the scheme, loss reduction works would be prioritised and trajectories for reduction of losses, both operational and financial, would be mutually agreed between the States, Discoms and the Centre. If the Discoms, including the poorly performing ones, achieve the mutually agreed targets and trajectories for improvement, they would be able to avail financial assistance under the Centre’s scheme.
But, what gives the Union Government the confidence that the States will be willing this time? Is there a way to fix accountability?
The Power Ministry maintains that discussions with States have been encouraging. The carrot here is the money and therefore States will come forward, officials feel.
While it is a fact that Discom finances are under pressure due to various reasons including lack or inadequacy of the tariff revisions, high distribution losses and rising subsidy dependence.
Critics feel that the latest offering is sweetening the deal only for those States that are willing to reform. There are some who feel if this scheme was in form of a loan, then it would put pressure on Discoms, but if it is a grant, then this initiative will perpetuate the cycle of unviability of Discoms — an acknowledgement that Discoms will never be able to fund these on their own.
The tariff factor
According to some critics, this cycle will continue — T&C losses will continue and Discoms will not be able to come out of it, until and unless a cost reflective tariff as the norm is introduced.
Some go even further in stating that the latest offering meet the same fate of the previous ones like UDAY unless the government addresses the leak in revenue and profits. A need for looking at proposals in draft amendments to the Electricity Act including direct benefit transfer, tariffs that reflect cost and disbursements of funds only when State Discoms are able to show a recovery of revenues are much needed. Otherwise funds will dry up with no change in the health of the Discoms, they fear.
“Most States are flouting rules as electricity remains a State subject and the Centre has only an advisory role to play,” said an observer adding the folly of these States reflects on the investments into the power sector in the whole country. The government is keen to bring in FDI which will be very difficult unless it plugs the holes.
The timely implementation by State governments and Discoms will remain critical for the success of the latest offering. But, then one should not forget that among the key factors that got Narendra Modi government its second term was “bijli for all”.