Tuesday, July 5, 2022

20 states seek additional borrowing from Centre in lieu of power sector reforms

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  • States committing to power sector reforms incentivised by additional market borrowings space
  • The Ministry of Finance has already accorded its approval to Andhra Pradesh and the state has availed borrowings of more than Rs 2,100 crore

New Delhi: A total of 20 states have shown interest in seeking additional borrowing from the Centre in exchange for committing to power sector reforms under the new scheme announced by the government last year, said REC Limited on Tuesday. The Centre had launched a programme in June 2021 to allow additional borrowing space to state governments, which is conditional on them undertaking and sustaining specific reforms in the power sector. REC Ltd is working as the nodal agency for the implementation of the scheme.

The additional borrowing limit permitted for power sector reforms is 0.5 percent of the Gross State Domestic Product (GSDP) of the respective state. “This being the first year of the current version of the scheme, the requirements of reforms and actions has been kept less onerous, with the bar raised for future years, pushing the states towards higher level reforms. Under the scheme, the states may commit to reforms and be eligible for increased borrowing space of ~Rs 80,000 crore,” said REC.

Power sector reforms: Andhra avails additional borrowing of Rs 2,100 cr

Based on the recommendations of the Ministry of Power, the Ministry of Finance has already accorded its approval to Andhra Pradesh and the state has availed borrowings of more than Rs 2,100 crore, to partly utilise such allowed additional borrowing space, said REC in an official statement. Proposals of Manipur and Rajasthan are also under active consideration at the Ministry of Finance, both of which may be eligible for the maximum limit of 0.50 percent increased borrowing space, based on reforms carried out by them in the power sector. Rest of the states are also submitting their proposals, the statement added.

“Such scheme is a very timely initiative in current times of Covid-induced financial stress and loss of revenues because of sporadic lockdowns across states. Power being a regulated sector, several changes are driven through legislation and major reforms have been pushed with the advent of Electricity Act, 2003. This scheme however adopts a novel approach to incentivize the states, to commit to reforms and in turn, take benefit in the form of availability of enhanced financial resources,” it said.


It is noteworthy that in 2021 as well, a slightly different version of this scheme was made applicable, which enabled 24 states to avail benefit of the same and avail additional borrowing limits of more than Rs 13,000 crore. Based on the learnings from bringing out such a scheme and the reception it received from the states, the framework was further revised this year to put forth incremental reform requirements that states need to commit to in their power sector. A number of provisions in the scheme like, timely publishing of annual accounts, filing of tariff petition, issuance of tariff orders, unit-wise subsidy accounting, publishing of Energy Accounts, adopting newer innovative technologies etc, remain common with the Revamped Distribution Sector Scheme (RDSS). The RDSS was launched by the Ministry of Power last year to improve the financial performance of power distribution companies (discoms). Both these schemes allow states to benefit from the additional money that becomes available, based on their commitment to underlying reforms as well as on being able to showcase corresponding outcomes.

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