Power sector reforms’ boost by states will make them eligible for financial sops

Effort aimed at accelerating power sector reforms to boost efficiency and performance of sector.

In a bid to aid the states to push for reforms in the power sector, the Union Finance Ministry has decided on providing financial sops in the form of additional borrowing permissions. The move that comes from the Department of Expenditure under the Ministry of Finance, is expected to prove to be a fillip in accelerating reforms and encourage the states to undertake reforms so as to enhance the efficiency and performance of the power sector.

As per the move, an additional borrowing space of up to 0.5 percent of the Gross State Domestic Product (GSDP) will be made available to the states in the country annually for a four-year period from 2021-22 to 2024-25. According to a government communication document, the additional finances will be dependent on the implementation of specific reforms in the power sector by the states.

Power Ministry recommendations evaluated by Finance Ministry

Going by the current scenario, the new initiative is seen as having pushed the state governments to put a start on the reform process in the power sector. It has been revealed that many states have come forward and submitted details of the reforms undertaken and achievements of various parameters to the Ministry of Power.

Taking into account the details submitted by the Power Ministry, the Finance Ministry has granted permission for reforms undertaken in 2021-22 and 2022-23 to as many as twelve state administrations. Over the last two fiscal years, these states have been permitted to increase the financial resources amounting to Rs. 66,413 crore through additional borrowing permissions.

States will be able to continue to avail themselves of the facility of additional borrowing linked to power sector reforms during the fiscal 2023-24. An amount of Rs. 1,43,332 crore will be available as an incentive to states for undertaking these 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 government document added.

Mandatory reforms and performance benchmarks

The primary objectives of granting financial incentives for undertaking power sector reforms are to improve operational and economic efficiency within the sector and promote a sustained increase in paid electricity consumption. State governments will be eligible for the incentives once they undertake a set of mandatory reforms and meet stipulated performance benchmarks.

The required 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; and compliance with legal and regulatory requirements.

The Finance Ministry will evaluate each state’s performance on completion of these reforms and will be rated as per specific criteria to determine the eligibility for the incentive amount.

Sanjeev Ramachandran

A journalist with 23 years of experience, Sanjeev has worked with reputed media houses such as Business Standard, The Ne More »

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