Urban power reforms: Slow start, steady pace but looming deadline

First part of the series discusses the financial support to urban power reforms, performance of states and the roadblocks

Urban power reforms, which aim at improving the quality of electricity supply and have the highest contribution in bettering the finances of state power utilities, are slowly picking up pace. 

Marred by a slow start, financial turmoil in power distribution companies (discoms) and the long-drawn process in starting execution, the Integrated Power Development Scheme (IPDS) is pushing states to innovate but within a tight deadline.

The three major reform plans under the IPDS —system strengthening, information technology (IT) enablement and smart metering — have been sanctioned Rs 293.6 billion for four years, to be borne by the Centre, discoms and institutional finance. However, less than a third of the Centre’s commitment — or Rs 52.6 billion — was met as of March last year. Under the IPDS, all the states have to meet the 100 per cent compliance target of all the above by next year.

To improve urban power supply and facilitate monitoring, the IPDS, announced in the Union Budget 2015, has one of the highest Central grant portions — 60 per cent. The discom has to pay 10 per cent while 30 per cent has to be loaned through banks.

But there is an important condition, which has partially been the reason for the slow transfer of funds: The state has to completely utilise its own (discom) contribution, in addition to 90 per cent utilisation of the Centre’s first two instalments. After these conditions are satisfied, the Centre transfers its biggest tranche of the IPDS funding to the state concerned.

So far, only five states seem to have become eligible for the biggest central funding tranche. They have been disbursed more than 30 per cent of the funds allocated to them.

The confluence of the rural electrification drive under the Deen Dayal Upadhyay Gram Jyoti Yojana and IPDS forms the backbone of power distribution reforms under UDAY — aimed at turning around the discoms.

Power ministry officials said setting the stipulated standards took most of the time under the IPDS. In a bid to reduce power tariffs and stop arbitrary procurement of power equipment by states, the central government in 2016 standardised prices and specifications for last-mile equipment in power distribution. After the first tender, the plan failed because the states resisted following a uniform norm.

“There was delay of more than three years because finalising plans, surveys, empanelling implementation agencies, settling bids, award projects, approving DPR took the maximum time. But the execution wouldn’t,” said an official, adding that all the progress on funding had happened in the past three-four months.

In utilising central funds, Andhra Pradesh and Gujarat are the best performers among big states, while Haryana and Madhya Pradesh could utilise the least proportion of the sanctioned money to date. 

Uttar Pradesh has lately improved and has been able to draw about half the funds allocated to the state. Officials said after UP increased the flat rate for unmetered connections, people were preferring metered connections, which was leading to increase in applications for power connections.

Maharashtra, which has been one of the slower states, agreed that there was delay in bidding for projects. “There was delay in bidding mostly owing to some projects in Marathwada and Vidarbha. There were also issues around clearances and permissions, like line crossings and roads,” said Arvind Singh, energy secretary, government of Maharashtra. He said 38 per cent of the works under the IPDS had been completed as of now.

In terms of Central fund utilisation, the first instalment has been utilised and the utility contribution spent. The Centre, however, is confident that 80-90 per cent of the financial progress would be achieved by the deadline of March next year, said A K Verma, joint secretary, ministry of power, adding, however, that financial closure by most states would be difficult to achieve till FY19.

“But that is just a procedure. Work on the IPDS is proceeding at a good pace,” he said. 

Part of the delay is also owing to focus on meeting the rural electrification target. The government achieved connecting all 500,000 villages to the grid last month, a year ahead of deadline. “Unlike rural population, urban areas are very vocal. Rural electrification is normally fast because of least interference but urban electrification takes time since there is opposition. Also while urban lifestyle is continuous and regular, rural lifestyle is characterised by seasonality,” Verma said.

Read the concluding part of the series tomorrow