Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), the two central government-owned funding agencies in the sector, have both issued stringent guidelines for short-term rupee loans to distribution utilities.
The utilities would have to give a copy of their previous year’s petition on supply rates, record of payment of subsidy dues for the current year and audited accounts no older than 18 months from the close of the relevant financial year. Further, record of fuel surcharge payment or equivalent subsidy payment from state government by March 31; also, dues for power consumed by government departments to be cleared by the end of the financial year. Similarly, the relevant state electricity regulatory commission would have to adopt model rate regulations.
They’ve issued these tightened rules after the power ministry has decided to hasten reforms process in the distribution sector. A ministry official told Business Standard: “There are several reasons for the current situation of the distribution sector, such as poor operational efficiency, poor billing and collection efficiency, mounting financial losses and high cost of power purchase. Besides, the upgradation of distribution infrastructure is impacted due to lack of investment.”
PFC’s own report on ‘Performance of the State Power Utilities’ for 2009-10 said losses of distribution companies had increased to Rs 42,415 crore (2009-10) from Rs 17,620 crore in 2007-08.
Said a PFC official: “Distribution utilities will have to submit a plan to wipe out cumulative losses by the end of the 12th Plan (March 2017), with cash surplus to be generated within two years, with half-yearly milestones. Further, there should be no revenue gap in the tariff (rate) order and regulatory assets will not be created as a matter of course except when it is justifiable and in accordance with Tariff Policy and regulations. For exceptional circumstances, when a regulatory asset is created, the recovery should start within one year of creation and to be fully recovered within three years, with carrying cost to be provided.”
State governments, he said, would have to convert loans to distribution utilities into equity.
