The government has released the draft guidelines of the ‘Revamped, Reforms-Based and Results-Linked Distribution Sector Scheme’ for supporting discoms to undertake reforms and improve performance in a time-bound manner, as announced during the recent Budget.
The scheme is aimed at providing 24×7 uninterrupted, quality, reliable and affordable power supply and seeks to improve discoms’ operational efficiencies and financial sustainability.
Total outlay for the scheme is estimated at Rs.3,03,800 crore (including Central government funding of Rs.97,600 crore) over the period FY22 to FY26. The scheme is positive for all players across the power sector value chain.
It is implicit that those discoms that are not able to reform and plug losses, will have to give way to privatisation (delicensing is proposed in the draft Electricity Amendment Bill), as states too don’t have the fiscal space to keep funding power sector losses. Also, as demand increases and short-term power prices inch up, the need to reform has increased.
Replacing UDAY
The new scheme will replace UDAY (Ujjwal Discom Assurance Yojana), which ended on March 31, 2020.
Existing schemes
Existing Integrated Power Development Scheme (IPDS), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and Prime Minister’s Development Package-2015 (J&K) schemes will be subsumed. It will soon be placed before the Union Cabinet and implemented through PFC and REC, the nodal agencies for 19 and 16 states and UTs respectively.
Main objectives
Major objectives of the Revamped, Reforms-Based and Results-Linked Distribution Sector Scheme’ are: (i) improve the quality, reliability and affordability of power supply to consumers through a financially sustainable and operationally efficient distribution sector; (ii) reduce pan-India AT&C losses to levels of 12-15 per cent by FY25; (iii) reduce ACS-ARR gap to zero by FY25.
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Scheme modalities
- The scheme has two parts (A and B). Part A has two components: (i) implementation of 250 million prepaid smart meters by March 2025 and (ii) strengthening the distribution infrastructure. Part B is focused on training, capacity-building and other enabling and supporting activities.
- For smart metering, discoms will tie up with implementing agencies. Central government grant for consumer smart prepaid meters will be a maximum of 15 per cent of project cost (up to Rs.900 per meter) and claimed for every 5 per cent meters commissioned. Focus is on end-to-end AMI creation and eliminating human intervention.
- Infrastructure strengthening program focuses on feeder separation, and cabling and system upgrade aimed at lowering AT&C losses. Grants will be released after signing of tripartite agreement among the discom, state and Centre, at approved loss-reduction trajectories.
- Discoms will receive grants in March of every year and will be conditional to achieving the milestones agreed for the previous fiscal, reviewed through the Results Evaluation Framework. In case a discom is found ineligible in any year, the funding gap will have to be met by the discom or its state government.
- Discoms will be mandated to publish audited annual and quarterly accounts in time, file tariff orders, collect dues from government departments, ensure no new regulatory assets creation and no outstanding subsidy receivables, among other requirements.
(Source: Report by ICICI Securities)
