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CCEA nod for National Electricity Fund (Interest Subsidy) Scheme

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The Cabinet Committee on Economic Affairs (CCEA) today approved setting up of the National Electricity Fund (Interest Subsidy) Scheme to provide interest subsidy, aggregating to Rs.8466 crore for a period of 14 years, for projects in the electricity distribution sector.
 
The scheme will become operational within a period of 6 to 12 months, an official press release said.
 
It said the scheme is being set up to provide interest subsidy on loans to be disbursed to the Distribution Companies (DISCOMS) - both in the public and private sector, to improve the distribution network for areas not covered by Rajiv Gandhi Gramin Vidyutikaran Yojana (RGGVY) and Restructured Accelerated Power Development and Reforms Programme (R-APDRP) project areas.
 
The preconditions for eligibility are linked to certain reform measures taken by the States and the amount of interest subsidy is linked to the progress achieved in reforms-linked parameters. The nodal agency for National electricity Fund (NEF) would be the Rural Electrification Corporation Ltd (REC).
 
The release said that, in order to evacuate and distribute the power generated as a result of the ambitious capacity addition programme, commensurate investment is required in transmission and distribution sector.
 
The DISCOMS, which handle the distribution sector, are in financial stress due to a variety of reasons. The national average Aggregate Technical and Commercial (AT&C) loss during 2007-08 was 29.24%, ranging from 13.10% to 61.59% for different DISCOMS.
 
The Thirteenth Finance Commission had reported that the projected aggregate losses of State Transmission and Distribution Utilities at 2008 tariffs would be at Rs.1,16,089 crore by 2014-15. Thus, Central government intervention is required for revamping and restructuring the distribution sector, it said.
 
The release said the investments in distribution sector already being undertaken under the RGGVY and R-APDRP cover towns with population of more than 30,000 (10,000 in case of Special Category States).
 
According to it, RGGVY primarily addresses the issue of providing access of electricity to un-electrified or partially electrified villages. The scope of works and amount of investment in these schemes is not adequate to meet the entire requirement of the distribution sector. There is no scheme to cover towns with population of less than 30,000 (10,000 in case of special category States); for reduction of AT&C losses in rural areas; for augmentation of distribution networks necessitated by capacity addition; for system strengthening and upgradation; and for encouraging States to undertake agricultural and domestic feeder separation in rural areas.
 
It said that, while it was important to channelise investments in distribution sector, it is also equally important to link these investments to reforms, as the viability of the entire power sector depends on the viability of the distribution utilities. Accordingly, the proposed scheme links interest subsidy with reforms.
 
It said there would be two categories of States for working out the interest subsidy-special category and focused states, and States other than special category and focused states.
 
The precondition of eligibility are operationalisation of State Electricity Regulatory Commission (SERC), formulation of business plan for turn around of utilities in a times bound manner, reorganization of State Electricity Boards (SEB), release of subsidy, submission of audited annual accounts and timely filing of tariff petition. Any pre-condition of eligibility can be relaxed/modified to overcome any difficulty in operating this Scheme, with the specific approval of Steering Committee, to be chaired by Secretary(Power).
 
The release said the financial implications of the National Electricity Fund would be interest subsidy aggregating Rs.8466 crore spread over 14 years for loan disbursement amounting to Rs.25,000 crore for distribution schemes sanctioned during the 2 years, 2012-13 and 2013-14. The outlay of` Rs.8466 crore would cover payment of interest subsidy to the borrowers, service charges to the nodal agency, payments to independent evaluators and other incidental expenses.
 
The implementation of the scheme would result in reduction of AT&C losses, reduction of gap between Average Cost of Supply and average revenue on subsidy received basis, improving return on equity and issue of notification of multiyear tariff along with investment in distribution sector. This scheme will facilitate Central government intervention, and catalyst for revamping and restructuring the state sector distribution scheme, the release added.
 
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