New Delhi — India will embark upon a new 3.06-trillion rupee ($42bn) plan to revive loss-making electricity distributors after an earlier programme that was started in 2015 failed to meet its goal to make them profitable.
The new plan, unveiled by finance minister Nirmala Sitharaman in her budget speech on Monday, seeks to reduce losses at mostly state-run provincial power distributors with poor financial health plaguing the industry for decades.
Prime Minister Narendra Modi’s government plans to invest in upgrading supply systems, installing smart, pre-paid meters and separating supply lines for subsidised and non-subsidised customers, unlike in 2015 when it focused mostly on reducing debt. The measures are aimed at boosting the financial viability of the retailers, Sitharaman said. The allocations will be made over five years and will be linked to the utilities meeting improvement targets.
The outlay for power distributors, also called discoms, was part of a slew of other measures Sitharaman outlined to improve the social and physical infrastructure of the country to help it emerge from the challenges presented by Covid-19. Fixing power retailers is critical to the broader goal to ensure reliable electricity supply for health, education and industries.
Modi’s administration will also put in place a framework to bring competition to the power distribution sector, the minister said, reiterating the power ministry’s efforts to provide options to electricity consumers.
“Competition in power distribution can help,” N Venu, MD of Hitachi ABB Power Grids, said.
Most distributors are forced to supply power at rates below-cost to consumers, including farmers and the poor. They partly make up the deficit by charging more from industrial customers and affluent households, but they often have to wait for months for subsidy payments from states. On top of that, the discoms lose, on average, a fifth of their revenue because of theft, leakages, and poor billing and revenue collection.
The retailers had, together, amassed financial losses of 4.89-trillion rupees as of March 2019, according to the latest published numbers by Power Finance, which tracks annual performance of these utilities. Losses came down for the first two years after the previous reform plan was launched, before jumping 69% in the year ended March 2019, according to Power Finance.
The efforts are likely to “enhance access to reliable power supply and spur economic activities in underserved rural communities in India”, Jaideep Mukherji, CEO at The Rockefeller Foundation’s Smart Power India, which operates minigrids in rural India, said in an e-mail.
Other important electricity-related proposals in Sitharaman’s speech are:
- Capital infusions of 10-billion rupees in the Solar Energy Corporation of India and 15-billion rupees in the Indian renewable energy development agency.
- The government must notify a manufacturing plan for solar cells and panels in clear phases.
- Basic customs duty on solar inverters must be increased to 20% from 5%.
- India must push through the launch of a hydrogen mission in fiscal year 2021/2022 to generate hydrogen from green energy sources.
Bloomberg
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