Centre to use electricity fund to push states on reforms

The Centre has decided to leverage the national electricity fund (NEF) to push states on power sector reforms. The fund is meant to provide interest subsidy on loans taken by states for funding power distribution projects.

Experts agree that the fund will help states reduce their funding cost, which should in turn lead to a reduction in their commercial losses.

The Centre has set up the fund following recommendation of the V K Shunglu panel. The panel recommended that the states be asked to take over distressed loans of discoms if they want to avail financial assistance from the Centre. Besides, they should also commit on implementation of power reforms in a time bound manner while negotiating terms of availing central financial package.

Sources said states will have to commit on key power reforms like provisions for bridging the gap between discom’s annual revenue requirement and expenditure, automatic pass-through of increase in fuel cost of power purchased and timely audit of the discom's accounts. This was conveyed to states in a meeting of state energy secretaries held by the Union power ministry recently, according to sources.

The investment requirement of the power distribution sector was estimated at R2 lakh crore during the past Eleventh Five-year Plan. But there was hardly any investment in the sector as most of the discoms were broke. The aggregated losses of the state power distribution sector are estimated at over R1.5 lakh crore. Meanwhile, the power ministry has envisaged adding 1 lakh mw capacity during the current Twelfth Five-year Plan after addition of 54,000 mw in the previous Plan. That calls for a matching investment in the power distribution sector.

Two central schemes, Accelerated Power Development and Reform Programme (APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), are already in operation to support the power distribution sector, which is entirely a state domain. “This is another lever of the central government to influence states on power sector reforms,” concurred Shubhranshu Patnaik, senior director, Deloitte India.

“The fund will help utilities raise fund at a cheaper cost. That would in turn help in loss reduction,” Charudatta Palekar, principal consultant, PWC, said.

The Union cabinet approved a proposal last December to set up the National Electricity Fund to provide interest subsidy of R8,466 crore for over a period of 14 years. Finance minister Pranab Mukherjee has allocated R72 crore to the fund in the latest budget 2012-13.