Need for State Govts to Conjointly Responsible for Financial Health of their Discoms: RK Singh

The Union Minister for Power, R. K. Singh said that there is a need for the state governments to be also conjointly responsible for the financial health of their fully owned power distribution companies (Discoms).

Singh said during a meeting with the Finance Commission headed by N.K. Singh on issues relating to the reforms of the electricity sector in the states. This was in continuation of the recommendations made on the power sector by the Finance Commission in its report for FY21.

RK Singh highlighted to the Commission the current disconnect in the structures of the power system between decision making by the state government and the financial consequences thereof, which are borne by the Discoms leading to losses.

While stressing on the need for state government’s responsibility, Power Minister said “the borrowing limits of the state governments under the FRBM Act, needed to be recalibrated to take these liabilities into account. This would bring to fore the responsibility of the state governments under whose control the Discoms operate.”

He further added that it will also bring financial transparency and bring about financially and managerially responsible behaviour of the States with respect to Discoms.

Singh also briefed the Commission about the reforms in the pipeline for the turnaround of Discoms including new tariff policy which is under consideration for approval. It includes path-breaking reforms in the power sector such as Amendments are proposed to the Electricity Act 2003.

He also highlighted that the old Power Ministry schemes are being amalgamated into a new scheme for which Singh requested the Commissions for support of Rs 3 lakh crore over a 5-year tenure. Moreover, this scheme would primarily focus on steps for reduction of losses, separate feeders for agriculture and smart prepaid meters.

During the meeting, the Commission also suggested to Power Ministry on the issues of regulatory capture, financial engineering, the sustainability of reforms, etc.

Meanwhile, it will also be recalled that the 15th Finance Commission in its report for FY21 noted that most states have reduced, to some extent, their aggregate technical and commercial (AT&C) losses and the difference between the average cost of supply and average realizable revenue (ACS-ARR) after implementation of the Ujwal Discom Assurance Yojana (UDAY) in 2016-17, said the Finance Commission.

However, the progress did not appear to be sustainable unless systemic issues in the power sector are suitably addressed, it added.

Thus, the Minister and the Commission came to the conclusion that robust and systemic reforms are required to improve the health of the power sector.

Besides, the Commission also assured the Power Ministry that it fully take into consideration the suggestions of the Ministry in its deliberations and while making its final report.

Recently, Prime Minister Narendra Modi also emphasized the need for improving the financial sustainability of the power sector in order to solve the issues prevailing in the sector especially the power distribution sector.