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MAR 01 2013

Will Budget 2013 restore fragile power distribution network?

  • Economic Times, ET Bureau / Hyderabad
  • Created: Fri 01st MAR 2013

The union budget has tried to address power distribution - the major chink in the power sector. Finance Minister, P Chidambaram during his budget speech has urged the state governments to prepare financial restructuring plans for Distribtuion Companies [Discoms] and sign the MOU.

Transmission and distribution (T&D) losses in the country have declined slowly to 22.39% in 2011-12 compared to world T&D loss level of 9.17% in 2009. The aggregate technical and commercial (AT&C) losses reported were around 27.15% in 2009-10. Most states have shown a declining trend in AT&C losses during 2010-11 and 2011-12.

However, the fulfillment of government's target on village electrification by 2012 may push up both T&D and AT&C losses further. It may necessitate either quick deployment of efficient franchisees in highly loss-prone areas or revisiting loss targets of Discoms.

The Cabinet Committee on Economic Affairs had earlier approved a Scheme for Financial Restructuring of State Distribution Companies. The Scheme contains various measures required to be taken by State DISCOMs and state government for achieving the financial turnaround of the Discoms by restructuring their debt with support through a Transitional Financial Mechanism by the Centre.

The features of the FRP Scheme include 50% of the outstanding short-term liabilities as on March 31, 2012 to be taken over by the state government. This shall be first converted in to bonds to be issued by DISCOMs to participating lenders duly backed by the state government guarantee. Remaining 50% of the short-term liabilities will be re-scheduled by lenders and serviced by the DISCOMs with moratorium of 3 years of Principal. Re-payment of Principal and Interest be fully secured by the State Govt. guarantee.

The Finance Minister in his Budget speech, 2013-14 has further pronounced to strengthen the above Scheme across the States. But the problem in Odisha is that the State has a Single Buyer Model with all the liabilities being there with the Bulk Supplier (i.e. GRIDCO). The DISCOMs have zero or negligible liability on Power Purchase front (if we exclude the securitized component of Power Purchase dues).

Odisha government has been demanding to include GRIDCO in the FRP Scheme, so that the past liabilities of GRIDCO can be wiped out and GRIDCO can be unbundled once the liabilities are taken out. This will open up room for reassignment of PPAs in favor of DISCOMs which is the requirementunder the Electricity Act, 2003.

"The Central Govt. should modulate its financial policy measures in respect of the power sector based on State-specific reforms rather than generalizing the same irrespective of the stage of reform in which a particular State is in"' says Madhu S Panigrahi, an Officer associated with Odisha Electricity Regulatory Commission.

"The FM's proposal of Zero customs Duty for Electrical equipments and machinery shall go a long way in easing prices of imports of these materials which shall reduce afresh the capital cost of Generation and encourage IPPs to establish more of Generation Plants to add to the generating capacity as targeted in the 12th Five Year Plan Period. This will ultimately help reducing the gaps in generation in meeting peak shortages in the country, he added.


Odisha Grid Company of Orissa Finance Distribution Companies Independent Power Producers Electricity Act P Chidambaram Memorandum Of Understanding Electricity Regulatory Commission Cabinet Committee on Economic Affairs Budget Power Electricity financial restructuring

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