The Cabinet Committee on Economic Affairs today approved setting up of a National Electricity Fund to give interest subsidy of Rs 8,466 crore for 14 years to power distribution projects.
The scheme will be operational within 12 months, an official statement said. The fund will provide interest subsidy on loans to be disbursed to power distribution companies in the public and private sectors, to improve the distribution network for areas not covered under the Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY) and the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) project areas.
The nodal agency for the fund will be Rural Electrification Corporation (REC). Among the eligibility conditions are formulation of business plan for turnaround of utilities, reorganisation of State Electricity Boards, release of subsidy, submission of audited annual accounts and timely filing of tariff petition.
The financial implication of the fund would be an interest subsidy at Rs 8,466 crore, over 14 years, for loan disbursement of about Rs 25,000 crore for distribution schemes sanctioned during 2012-13 and 2013-14.
The average aggregate technical and commercial (AT&C) loss during 2007-08 stood at 29.24 per cent and the XIII finance commission had reported that the projected aggregate losses of state transmission and distribution utilities at 2008 tariffs would be at Rs 1,16,089 crore by 2014-15.
The implementation of the scheme would result in reduction of AT&C losses, reduction of gap between average cost of supply and average revenue on subsidy received basis, improving return on equity among others, the statement added.
The financial situation of the distribution power companies is gloomy as the companies are not able to recover their cost of operation because of the mismatch in the cost and tariff. There has been no substantial increase in power tariffs in five or six years that may have helped consumers but has made distribution companies go in the red.
Apart from the tariff mismatch, the other reason for high losses of discoms is because of inadequate subsidy being received by them from the state governments.
