Include Discom liability while fixing states' borrowing, Minister tells finance panel

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SME Times News Bureau | 29 May, 2020
In a bid to ensure financial discipline among states, the Power Ministry wants their borrowing limits under FRBM Act be recalibrated to take into account liabilities of their Discoms.

In his briefing on the power sector to the 15th Finance Commission, Power Minister R.K. Singh said there was a need for the state governments to be also conjointly responsible for the financial health of their fully owned Discoms.

On the proposal to link borrowing limits of states to discom liabilities, the minister said this was based on financial transparency to bring about financially and managerially responsible behaviour among states with respect to Discoms.

Singh also highlighted to the Commission the current disconnect in the structures of the power system between decision-making by state governments and the financial consequences thereof, which are borne by the Discoms, leading to losses.

The Commission took note of the suggestions given by the Power Ministry and gave assurance that it fully takes into consideration the suggestions of the Ministry in its deliberations and also in its final report.

The Finance Commission headed by N. K. Singh on Friday held a detailed meeting with the Power Ministry on issues relating to reforms in the electricity sector in states. This was in continuation of the recommendations made on the power sector by the Finance Commission in its report for the financial year 2020-2021.

The discussion was a lead-up to the Commission's next report following announcement of Rs 90,000 crore liquidity injection for electricity Distribution Companies (DISCOMs) by the Finance Minister as part of the Rs 20 lakh-crore economic package announced to combat the disruption from the coronavirus lockdown.

The power Minister also briefed the Commission about the reforms in the pipeline for the turnaround of the Discoms. This included the new tariff policy which is under consideration for approval. Amendments are also proposed to the Electricity Act of 2003.

Singh informed the Commission that the old schemes of the Ministry are being amalgamated into a new scheme for which he requested the Commission for a support of Rs. 3 lakh crore over a five-year period. This scheme would primarily focus on steps for reduction of losses, separate feeders for agriculture and smart prepaid meters.

The 15th Finance Commission in its report for FY 2020-21 noted that most states have reduced, to some extent, their aggregate technical and commercial (AT&C) losses and the difference between average cost of supply and average realizable revenue (ACS-ARR) after implementation of the Ujwal DISCOM Assurance Yojana (UDAY) in 2016-17.

However, the progress did not appear to be sustainable unless systemic issues in the power sector are suitably addressed. The Minister and the Commission felt that robust and systemic reforms are required to improve the health of the power sector.