A draft seeking inputs from different ministries will be circulated soon
In a move to quicken the pace of electricity distribution reforms, the Union power ministry will seek Cabinet approval for operationalising a National Electricity Fund, the funding intervention mooted two years ago for distribution projects.
“A draft cabinet note will be circulated soon, seeking inputs from different ministries,” said P Uma Shankar, secretary in the power ministry.
The government had mooted such a fund in 2008 to help the perennially bankrupt state electricity boards (SEBs) improve their finances and reduce distribution losses. The money raised by NEF was to be loaned to these boards at low rates of interest.
After the 2008-09 budget announcement on NEF, a committee headed by the member (power) in the Planning Commission, B K Chaturvedi, was set up to work out the details. The panel had suggested an interest subsidy mechanism where the Centre would bear a part of the interest cost of funds raised by state utilities for distribution projects.
Based on these recommendations, a memo was circulated by the government in April this year, proposing an interest subsidy of Rs 18,438 crore over 14 years on loan disbursements of Rs 50,000 crore during the 11th Plan (2007-12) period. The proposal had then gone to the Expenditure Finance Committee (EFC) under the finance ministry.
Uma Shankar said the EFC’s crucial approval for providing interest subsidy under the NEF proposal has been received by the ministry. “The proposal was cleared by the EFC last month. We are targeting it (NEF) for the next fiscal. So, we want to get it (cabinet approval) completed within this year,” he said.
More From This Section
The ministry had demanded allocation of Rs 5,063 crore for the NEF for 2010-11, for recasting the scheme to make it applicable to loans from the banking sector and other financial institutions for distribution projects, along with non-Accelerated Power Development and Reforms Programme (APDRP) projects. However, only Rs 227 crore was allocated.
The low allocation for the NEF was why the Planning Commission had reduced the overall fund allocation for the ministry for the current year. The Commission had approved Rs 60,751 crore for the ministry, as against a proposed annual plan outlay of Rs 64,551 crore for 2010-11.
Distribution was identified as the “weakest part” in the country’s power sector by the Planning Commission in its Mid Term Appraisal (MTA) earlier this year, owing to heavy Aggregate Technical and Commercial (AT&C) losses. These losses touched Rs 40,000 crore in 2009-10 and stop most SEBs from raising money or ensure they can so only at very high rates of interest. The new fund is to address this issue. Around 40 per cent of India’s overall annual power generation of 700 billion Units is lost due to inefficient transmission and distribution networks.