The Union Minister of Power, R.K. Singh, has sought for the Finance Commission’s support to revamp the Indian power sector at the state level and has asked for ₹3 trillion (~$40.05 billion) over the next five years to help achieve this goal.

Singh said that the Ministry of Power (MoP) is currently transforming its old programs into newer ones that primarily aim to focus on steps for reduction of losses, separate feeders for agriculture, and smart prepaid meters, in light of the poor financial performance of distribution companies (DISCOMs).

The reforms would include a new tariff policy, which includes “path-breaking reforms in the power sector” and are intended to help DISCOMs get out of their current predicament, said Singh in a meeting between the members of the Finance Commission and Power Ministry officials. The meeting was held to discuss reforms in the power sector at the state level.

The minister stated that the current losses being borne by DISCOMs are a result of a disconnect in the structures of the power system between decision making by the state governments and their financial consequences.

He highlighted the need for state governments also to be held accountable for the financial health of state-owned DISCOMS. To achieve this, the borrowing limits of the state governments under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, need to be tweaked to take these liabilities into account to ensure financial transparency, Singh added, noting that this would bring about financial and managerial responsibility from state governments.

The union minister cited the fact that states have reduced their aggregate technical and commercial (AT&C) losses and the difference between the average cost of supply and average realizable revenue, thanks to the Ujwal DISCOM Assurance Yojana (UDAY) in 2016-17. However, he stated that the progress would not be sustainable unless systemic issues in the power sector are suitably addressed.

In March, R.K. Singh announced that based on the standard capital cost per MW, an investment of around ₹1.34 trillion (~$18 billion) is estimated to have been made in the renewable energy sector during the last three years from 2017-18 to 2019-20 up to January 2020.

The Government of India has set aside funds to the tune of ₹900 billion (~$11.94 billion) to help DISCOMs get back on their feet amid the ongoing coronavirus crisis.

Recently, Mercom analyzed how bailing out DISCOMs in every crisis is not the right way to address the problematic areas of the power sector. Read the in-depth report here.