Five More States Become Eligible for Power Sector's Reform-Linked Borrowings

Reform-linked borrowings have provided the necessary impetus for reforms in the power sector in many states in the country. According to the latest figures released by the Ministry of Finance, five more states – Bihar, Goa, Karnataka, Rajasthan, and Uttarakhand – have met the target of reduction in Aggregate Technical and Commercial (AT&C) losses or achieved the targeted reduction in Average Cost of Supply and Average Revenue Realization (ACS-ARR) gap.

The reduction of AT&C losses and ACS-ARR gap are two of the three reforms put forward by the Ministry of Finance. The borrowing cap for the states is linked to undertaking reforms in the power sector. The states are eligible to borrow an amount equal to 0.05% of the gross state domestic product (GSDP) for meeting the reduction in AT&C losses and an additional 0.5% for meeting the ACS-ARR gap target.

Uttarakhand led the way in both the reduction in AT&C losses and the ACS-ARR gap. The state achieved the target of 19.01% for the AT&C losses as against the target of 19.35%. For the ACS-ARR gap target, the state achieved a figure of ₹0.36 (~$0.0048)/kWh as against the target of ₹0.40 (~$0.0054)/kWh. Goa was another state that brought the AT&C losses to 11.21% as against the target of 13.53%.

Karnataka reduced the ACS-ARR gap to ₹0.44 (~$0.0059)/kWh compared to the target of ₹0.50 (~$0.0067)/kWh. Rajasthan also achieved the target and reduced the gap to ₹1.16 (~$0.015)/kWh compared to the target of ₹1.40 (~$0.018)/kWh.

Meeting the reform requirements has made these states eligible to mobilize additional resources of ₹20.94 billion (~$283.2 million), which have helped them fight the COVID-19 pandemic and enhance capital expenditure.

Andhra Pradesh and Madhya Pradesh have undertaken the third reform in the power sector, the Direct Benefit Transfer of electricity to farmers. Consequently, the two states were permitted additional borrowings of ₹29.38 billion (~$397.37 million). As of now, the seven states which have undertaken power sector reforms have been permitted additional borrowings of ₹50.32 billion (~$680.59 million).

The power sector reforms introduced by the Ministry of Finance aim at creating a hassle-free and transparent process in place for providing power subsidies to farmers and prevent leakages. The reforms also aim at improving the health of the distribution companies (DISCOMs) sustainably by providing them liquidity.

To help the states fight the challenges posed by the COVID-19 pandemic, the central government had increased the states’ borrowing limits to 2% of their GSDP.

In all, 21 states have carried out at least one reform measure and have been granted reform-linked borrowings. The total reform-linked additional borrowing permission to states stood at ₹916.67 billion (~$12.39 billion).

In September last year, the Andhra Pradesh government decided to introduce the Direct Benefit Transfer on the subsidy extended as free electricity to farmers. The decision came after the central government issued a draft proposal for the amending the Electricity Act 2003 to address issues in the power sector.

Earlier, Mercom reported that the Power Finance Corporation had written to six states about implementing the supervisory control and data acquisition (SCADA)/distribution management system under the government’s Restructured Accelerated Power Development and Reforms Program (R-APDRP) to enhance reliability in the power distribution network.