Power Ministry prepares ₹3 lakh crore scheme for Discom reforms

The Ministry of Power has drawn up plans for a ₹3 lakh crore new scheme to improve the health of power distribution companies (Discoms). The old schemes of the Ministry will be amalgamated into this new scheme, an official statement said.

The contours of this scheme were discussed during a meeting between the Ministry of Power and the Finance Commission on issues relating to the reforms of the electricity sector in the States.

R K Singh, Minister of State (Independent Charge) for Power and New and Renewable Energy, has requested the Finance Commission for support of ₹3 lakh crores over a five year period for this scheme.

Singh 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 and amendments that are proposed to the Electricity Act of 2003.

This new scheme would primarily focus on steps for reduction of losses, separate feeders for agriculture and smart prepaid meters, the statement said.

The Power Ministry has been preparing the second leg of discom reforms since late 2018. These new reforms will follow the Ujwal DISCOM Assurance Yojana (UDAY), the first leg of discom reforms under the Narendra Modi government launched in November 2015.

Singh said that the current disconnect in the structures of the power system is between decision making by the State government and the financial consequences of those moves.

The financial burden of these policy decisions are borne by the discoms leading to losses, the statement said.

"The Minister emphasized the need for the State Governments to be also conjointly responsible for the financial health of their fully owned Discoms. Towards this end the borrowing limits of the State Governments under the Fiscal Responsibility and Budget Management Act, 2003, needed to be recalibrated to take these liabilities into account. This would bring to fore the responsibility of the State Governments under whose control the Discoms operate. It will also bring financial transparency and bring about financially and managerially responsible behavior of the States with respect to Discoms," the statement said.

The Fiscal Responsibility and Budget Management Act, 2003 is aimed at preventing errant spending by the state and centre.

Since the discoms bear the losses for populist policies, the burden was not reflecting in the balance sheets of the States. This allowed the State governments to continue to ignore the fiscal health of companies at the cost of populist policies.

This meeting was in continuation to the recommendations made on the power sector by the Finance Commission in its report for the financial year 2020-2021. It is a lead-up to the Commission’s next report for the FY2021-2026.