Modi to Spend $42 Billion to Revive Power Retailers

(Bloomberg) -- India will embark upon a new 3.06 trillion rupee ($42 billion) plan to revive loss-making electricity distributors after an earlier program started in 2015 failed to meet its goal to make them profitable.

The new plan, unveiled by finance minister Nirmala Sitharaman in her budget speech on Monday, seeks to reduce losses at mostly state-run provincial power distributors whose poor financial health has plagued the industry for decades.

Prime Minister Narendra Modi’s government plans to invest in upgrading supply systems, installing smart prepaid meters and separating supply lines for subsidized and non-subsidized customers, unlike in 2015 when it focused mostly on reducing the debt. The measures are aimed at boosting the financial viability of the retailers, Sitharaman said. The allocations will be made over five years and will be linked to the utilities meeting improvement targets.

The outlay for power distributors, also called discoms, was part of a slew of other measures Sitharaman outlined to improve the social and physical infrastructure of the country to help it emerge from the challenges presented by the Covid-19 outbreak. Fixing power retailers is critical to the broader goal to ensure reliable electricity supply for health, education and industries.

Modi’s administration will also put in place a framework to bring competition in the power distribution sector, the minister said, reiterating the power ministry’s efforts to provide options to electricity consumers.

READ: India Plans $41 Billion Reform to Revive Ailing Power Utilities

“Competition in power distribution can help” ensure this performance-based assistance doesn’t become a redux of the 2015 Ujwal DISCOM Assurance Yojana, N. Venu, India managing director of Hitachi ABB Power Grids, said in an email.

Most distributors are forced to supply power at rates below-cost to some consumers, including farmers and the poor. They partly make up the deficit by charging more from industrial customers and affluent households but they often have to wait for months for subsidy payments from states. On top of that, the so-called discoms lose on average a fifth of their revenue because of theft, leakages, and poor billing and revenue collection.

The retailers had together amassed financial losses of 4.89 trillion rupees as of March 2019, according to the latest published numbers by Power Finance Corp., which tracks annual performance of these utilities. Losses came down for the first two years after the previous reform plan was launched, before jumping 69% in the year ended March 2019., according to Power Finance Corp.

The efforts will likely “enhance access to reliable power supply and spur economic activities in under-served rural communities in India,” Jaideep Mukherji, chief executive officer at The Rockefeller Foundation’s Smart Power India, which operates minigrids in rural India, said in an email.

Other important electricity-related proposals in Sitharaman’s speech are below:

• Capital infusion of 10 billion rupees in Solar Energy Corp. of India and 15 billion rupees in Indian Renewable Energy Development Agency
• Government to notify a phase-wise manufacturing plan for solar cells and panels
  • Basic customs duty on solar inverters to be increased to 20% from 5%
• India to launch hydrogen mission in fiscal year 2021-22 to generate hydrogen from green energy sources

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