House panel pulls up ministry on power fund

Aparliamentary panel has pulled up the power ministry for failing to get the National Electricity Fund (NEF) — a critical funding intervention for distribution projects — operational, especially when power distribution is proving to be a major roadblock for realisation of investment targets in the country’s electricity sector.

The idea of creating the fund was mooted over two years back to help the perennially-bankrupt state electricity boards improve their finances and reduce distribution losses. The money raised by the fund was to be loaned to these boards at low interest rates.

“The committee is anguished to note that there is a huge time lapse, since the announcement of NEF in 2008-09, and the scheme is yet to take shape, as the ministry is still involved in working out the modalities,” the Parliamentary Standing Committee on Energy said in its report tabled in Parliament this week. “As the scheme is related to the distribution sector and covers the interest component of investment, the delay will not only affect the vital reforms in distribution but also dampen the spirit of investors,” the committee pointed out.

The report analysed the actions taken by the government on the panel’s earlier recommendations on the ministry’s demand for grants for this financial year. The panel had made 12 recommendations — including those regarding the lagging pace in power capacity addition and uneven utilisation of funds — in its April 2010 report. The committee had also expressed concern over the NEF scheme remaining a non-starter.

In the latest report, the committee indicated that the lower allocation of funds for NEF was the reason why the Planning Commission reduced the overall fund allocation to the ministry for this financial year. The commission had approved allocation of Rs 60,751 crore to the ministry, against a proposed annual plan outlay of Rs 64,551 crore, for 2010-11.

The ministry had demanded increased allocation of Rs 5,063 crore for NEF for recasting the scheme to make it applicable to loans from the banking sector and other financial institutions for non-Accelerated Power Development and Reforms Programme projects. However, only Rs 227 crore was allocated for the scheme.

After the 2008-09 budget announcement of the creation of NEF, a committee, headed by the member (power) of the Planning Commission, was set up. Based on its recommendations, a memo was circulated in April this year, proposing interest subsidy of Rs 18,438 crore over 14 years on loan disbursements of Rs 50,000 crore during the eleventh Plan period.

The proposal is under consideration of the Expenditure Finance Committee (EFC) of the finance ministry, which, too, has been pulled up by the Parliamentary panel. “The committee notes that despite a lapse of more than six months, no progress has been reported in the matter, and EFC is yet to take a view on the issue,” the report said.

An official in the ministry, however, said the ministry had received EFC’s approval for the proposal, after the preparation of the panel’s report.

India is investing over Rs 95,000 crore in its power sector a year, with around 20 per cent, or Rs 18,000 crore, of this in the distribution sector. In its Mid-Term Appraisal earlier this year, the Planning Commission identified distribution as the ‘weakest part’ in the country’s power sector.