12 states can borrow ₹66,000 cr more after power sector reforms

West Bengal leads the race among 12 states in getting approval for additional borrowing on account of reforms in power sector. The Finance Ministry on Wednesday granted permission to borrow over Rs 66,000 crore on account of power sector reforms.

The initiative, announced by Union Finance Minister Nirmala Sitharaman in Budget 2021-22, gives states an additional borrowing space of up to 0.5 per cent of the gross state domestic product (GSDP) annually for four years, from 2021-22 to 2024-25. This additional financial window is dependent on the implementation of specific reforms in the power sector by the states.

According to a statement from the Finance Ministry, based on the recommendations of the Power Ministry, permission has been granted to 12 state governments for reforms undertaken in 2021-22 and 2022-23. “Over the last two financial years, they have been allowed to raise financial resources of Rs 66,413 crore through additional borrowing permissions,” the statement said.

Further, during financial year 2023-24, states can continue to avail themselves of the facility of additional borrowing linked to power sector reforms. Over r Rs 1.44 lakh crore will be available as incentive to states for undertaking reforms in 2023-24. States that were unable to complete the reform process in 2021-22 and 2022-23 may also benefit from the additional borrowing earmarked for 2023-24 if they carry out the reforms in the current financial year, the statement added.

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The primary objectives of the financial incentives for power sector reforms are to improve operational and economic efficiency within the sector and promote a sustained increase in paid electricity consumption. To be eligible for the incentives, State governments must undertake a set of mandatory reforms and meet stipulated performance benchmarks. The reforms include:

• Progressive assumption of responsibility for losses of public sector power distribution companies (DISCOMs) by the state government.
• Transparency in the reporting of financial affairs of power sector including payment of subsidies and recording of liabilities of governments to DISCOMs, and of DISCOMs to others.
• Timely rendition of financial and energy accounts and timely audit. 
• Compliance with legal and regulatory requirements.
• Upon completion of these reforms, a state’s performance is evaluated based on specific criteria to determine its eligibility for the incentive amount, which may range from 0.25-0.5 per cent of GDP, based on performance.

The evaluation criteria include:

• Percentage of metered electricity consumption against total energy consumption, including agricultural connections.
• Subsidy payment by direct benefit transfer (DBT) to consumers.
• Achievement of targets for reduction in aggregate technical and commercial (AT&C) loss.
• Meeting the target of reduction in average cost of supply and average realisable revenue (ACS-ARR) gap.
• Reduction in cross-subsidies.
• Payment of electricity bills by government departments and local bodies.
• Installation of prepaid meters in government offices.
• Use of innovations and innovative technologies.

Furthermore, states are eligible for bonus marks for privatisation of power distribution companies. The Power Ministry serves as the nodal ministry for assessing the performance of states and determining their eligibility for additional borrowing.

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