More autonomy for discoms proposed

Forum of Regulators or FOR puts onus of financial turnaround of discoms on states in State Electricity Distribution Responsibility draft

A draft on the state electricity distribution responsibility Bill by a forum of regulators proposes making state governments responsible for steps to enable the financial turnaround of distribution licensees. It also envisages power purchase planning and procurement in the short, medium and long terms by distribution licensees (with the approval of the state electricity regulatory commission), a time-bound programme to cut losses, special courts to tackle theft, and greater autonomy to state distribution licensees.

The draft legislation was prepared by the forum of regulators through its consultants, as sought by the power ministry. The forum is a representative body of power regulators. Its Chairman, Pramod Deo, who also heads the Central Electricity Regulatory Commission, told Business Standard, “The draft came up for discussion at the forum’s meeting last month in Srinagar.” A power ministry official said ultimately, states would enact the legislation, as the financial viability of distribution licensees was crucial for the power sector.

The draft legislation has been formulated at a time when the Centre has launched a scheme for the financial restructuring of state-owned distribution companies, as well as for their long-term viability. As of March 2011, the cumulative losses of distribution utilities stood at Rs 1.9 lakh crore, against Rs 1.22 lakh crore in 2009-10.

The draft legislation proposes advance payment of annual budgetary provision for subsidy by state government to the distribution licensee and the payment of past government dues and budgetary provision for the payment of electricity supplied to various government departments.

The draft legislation recommends the implementation of a financial restructuring plan for state distribution companies, as well as notifying an action plan to undertake their financial liabilities. It says these liabilities have to be in accordance with the state fiscal responsibility & budget management limit. Also, the financial liability taken over by the state government wouldn’t be adjusted as a loan to the state distribution licensee, and the FRP would be made part of the state budget statements for monitoring its impact on state finances.

The draft legislation also says borrowings by distribution companies would be against verifiable physical assets; these shouldn’t be aimed at funding operational losses. It added the board of directors of a state distribution licensee would be a combination of functional and independent directors. A code of conduct for all boards of directors and senior managements would also be put in place.

The distribution licensee would have to be regular in filing true-up petitions, annual revenue requirements and tariff petitions at the state electricity regulatory commission.

The draft legislation also suggests a committee comprising the chief secretary or finance secretary, the power secretary, the head of the distribution company and representatives of the nodal bank and three major lenders be formed to monitor effective implementation.