Additional resources of ₹ 7,309 crore made available to States for undertaking power sector reforms

11 States have claimed additional borrowing based on reforms undertaken in power sector

Department of Expenditure, Ministry of Finance has granted additional borrowing permission of ₹ 7,309 crore to two States for undertaking the stipulated reforms in power sector. While, Rajasthan has been allowed to borrow additional ₹ 5,186 crore, Andhra Pradesh has been allowed to borrow additional ₹ 2,123 crore as incentive to embark on the reform process.

Ministry of Finance, based on the recommendations of the Fifteenth Finance Commission, has decided to grant additional borrowing space of upto 0.5 percent of the Gross State Domestic Product (GSDP) to the States every year for a four year  period from 2021-22 to 2024-25 based on reform undertaken by the States in the power sector. This was announced by the Finance Minister in the Budget speech of 2021-22. This will make available additional resources of more than ₹ 1 lakh crore every year to the States. The objectives of the additional borrowing permissions are to improve the operational and economic efficiency of the sector, and promote a sustained increase in paid electricity consumption.

In order to avail additional borrowing space linked to Power sector reforms, the State government has to undertake a set of mandatory reforms and also meet stipulated performance benchmarks. The reforms to be carried out by the States are -

• Progressive assumption of responsibility for losses of public sector 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.

Once, the aforesaid reforms have been undertaken by the State, the performance of the State is evaluated on the basis of the following criteria to determine the eligibility for additional borrowing in 2021-22

• Percentage of metered electricity consumption against total energy consumption including agricultural connections
• Subsidy payment by Direct Benefit Transfer (DBT) to consumers
• Payment of Electricity bills by Government Departments and local bodies
• Installation of prepaid meters in government office
• Use of Innovations and Innovative technologies

In addition, States are also eligible for bonus marks for privatization of the power distribution companies.

The Ministry of Power is the nodal Ministry for assessment of performance of States and determining their eligibility for granting additional borrowing permission. Apart from Rajasthan and Andhra Pradesh, nine other States, namely Assam, Goa, Kerala, Manipur, Meghalaya, Odisha, Sikkim, Tamil Nadu and Uttar Pradesh have also submitted their proposals to the Ministry of Power, which are under examination. Additional borrowing permission will be issued to eligible States on receipt of recommendation from the Ministry of Power.

Power sector reform-linked borrowing space enables states to access additional fiscal room contingent on meeting sectoral performance benchmarks. The central government authorises additional borrowing space for States conditional on implementation of specified power sector reforms and satisfaction of performance benchmarks. Mandatory reforms include state assumption of DISCOM losses, transparent financial reporting, timely accounts and audits, and legal and regulatory compliance. Eligibility is assessed on metering coverage, direct benefit transfer of subsidies, government entities' bill payments, prepaid meters in offices, and adoption of innovations; bonus marks apply for privatization. The Ministry of Power evaluates performance and recommends States for borrowing permission.