Centre, states to share cost of Rs 3-trillion discom reform scheme

Umbrella scheme to include grants for schemes of IPDS, DDUGJY, and have loss-reduction targets

The new ‘reform-linked distribution scheme’, aimed at overhauling the power distribution sector and building robust supply infrastructure, will subsume all existing schemes into it, with the cost being shared between the Centre and states. 

The total capital outlay of the scheme is estimated at Rs 3.12 trillion, of which 60 per cent would be a Central grant, with the balance borne by states.

In its initial submission to the finance ministry, the Union power ministry has asked for a Central grant of Rs 1.8 trillion with a liability period till March 2022. 

“The power ministry has proposed to the expenditure department (under the finance ministry) that for two years, no other Central grant would be needed for the power distribution sector. This would include the grant for existing schemes of IPDS and DDUGJY,” said an official. 

The Deendayal Upadhyay Gram Jyoti Yojana (DDUGJY) is aimed at metering every rural household and improving electricity infrastructure in villages. The Integrated Power Development Scheme (IPDS) targets improvement in electricity infrastructure in urban areas, along with the introduction of smart meters and IT systems in power supply. 

Both schemes were launched in 2015, and the remaining Central grant of Rs 23,000 crore will be part of the new scheme. The power ministry had, last year, proposed a scheme for reviving the power distribution sector with a capital outlay of Rs 2 trillion. It entailed 40-60 per cent of Central grant if states took up reforms suggested by the Centre. 

However, the finance ministry did not approve of the grant portion. Most states, too, opposed the proposal of having a private franchisee and the end of subsidies that were part of the reform package.   

Under the current proposal, the power ministry says savings on account of an improved infrastructure would be used in other schemes, and therefore no additional Central grant would be needed. Officials said the scheme was under inter-ministerial discussions and would be presented to the Expenditure Finance Committee (EFC) soon.

The scheme would include pending targets under the DDUGJY and IPDS, and have provisions to build better infrastructure, smart meters, and a private franchisee model for improving power supply.

In DDUGJY, close to Rs 70,000 crore of the total sanctioned grant of Rs 1.03 trillion has already been sanctioned for various projects. In IPDS, the total sanctioned Central grant is Rs 20,000 crore, of which Rs 13,859 crore has been released for several projects including ‘system strengthening, IT systems, and smart metering’ etc. 

Further, the power ministry has stated that funds under the scheme will be released in proportion to the achievement by discoms, against the mutually agreed targets in the action plan. UDAY had a similar scheme design, wherein funds for schemes and loans by financial institutions were linked to loss reduction by discoms.

Business Standard had earlier reported that the scheme would have a five-year time period for discoms to improve their operational and financial performance. UDAY concluded in FY20 with most states failing to meet their stipulated targets. 

The Aggregate Technical & Commercial (AT&C) losses, or power supply loss due to inefficient systems, was supposed to reduce to 15 per cent and average cost-revenue (ACS-ARR) gap of discoms down to zero by FY20. 

However, AT&C loss stands at 23.9 per cent and cost-revenue gap at 0.53 paisa per unit, according to the UDAY portal. The numbers are the national average of the last available data of all discoms for FY20, and indicative data of six states for Q1FY21. The cumulative financial loss for all discoms stood at Rs 18,000 crore during FY20.