Centre plugs into power reforms to recharge distribution

Eight states already on board; Maharashtra to sign up soon

The Centre's plan to revive the power distribution sector is gathering momentum with Maharashtra set to take up the government's Power for All programme, which envisages overhaul of the power sector through state-level initiatives, besides tariff reforms for cleaning up the balance sheets of state-owned distribution companies. Eight states have already signed memoranda of understanding (MoU) with the Union power ministry for the initiative. These include big states such as Rajasthan, Andhra Pradesh, Chhattisgarh, Jharkhand and Assam. Last month, the government had got Uttarakhand, Meghalaya and Goa on board.

The Centre wants to rope in more states for the Power for All programme, putting the onus on states to reform their power system through regular tariff hikes and debt restructuring. The comprehensive plan includes making way for a slew of technical and commercial reforms ranging from more power procurement, strengthening transmission & distribution and ways to cut losses.

Among the big states, Jharkhand is required to make the highest increase in tariff of 13.5 per cent for four years. Assam is required to raise tariff by about 10 per cent. While tariff hike proposed for Uttarakhand is 1.7 per cent, for Goa it is 11 per cent, and for Meghalaya it is 15 per cent from FY17 onwards. For Andhra Pradesh, no tariff hike is proposed since it is not saddled with financial losses.

The Centre is pursuing states to cut losses and debt by hiking tariff and raising funds from the market. "Though Maharashtra has all its villages electrified, we're targeting unelectrified households, according to the 2011 census," said a senior government official. The MoUs are prescriptive in nature to address individual state's concerns, he said. One round of review is left for Maharashtra, after which the MoU is expected to be signed.

The budgetary support from the Centre would be for its flagship schemes - Deendayal Upadhyaya Gram Jyoti Yojana and Integrated Power Development Scheme. The total fund requirement till FY19 for eight states that have so far signed the MoU is Rs 2,41,528 crore till 2018-19. These states, barring Andhra Pradesh, together have losses of Rs 95,400 crore.

States can meet funding shortage through external/market borrowing from financial institutions or developmental aid agencies, which the state would facilitate for self. The state can ask for financial support, but only when its generation, transmission and distribution utilities abide by its respective State Electricity Regulatory Commission. These states reel under huge losses and mounting debt owing to years of not increasing consumer power tariff. The accumulated financial losses of power distribution arm of Uttarakhand stands at Rs 1,695 crore, of Meghalaya Power Development Corporation at Rs 694 crore and Rs 624 crore of Electricity Department of Goa.

The states would have to increase power generation from local energy sources (for instance, hydro in Uttarakhand and Meghalaya), improve interstate transmission network, revive the sick distribution sector, enhance use of renewable energy and use energy efficient measures. Among other suggested initiatives are developing a strong communication, information and technology, and monitoring division.

The Centre would assist with financial assistance from the ministry of new and renewable energy for various schemes and assistance from ministry of power for rural and urban electrification. CRISIL has been involved with preparing consultancy notes for Uttar Pradesh, Chhattisgarh, Madhya Pradesh, Karnataka, Tripura and Pondicherry, while Deloitte has been appointed consultant for Jharkhand, Assam, Maharashtra, West Bengal and Tamil Nadu. Mecon has been appointed for Bihar, Telangana, Gujarat, Punjab, and Delhi, among others.