In a significant move to promote reforms in the power sector, the Department of Expenditure, Ministry of Finance, has introduced financial incentives for states. This initiative aims to encourage and support states in undertaking reforms to enhance the efficiency and performance of the power sector. The Union Budget 2021-22 announced this program, which provides additional borrowing permissions to states as a reward for implementing specific reforms.
Financial Incentives for Power Sector Reforms:
The financial incentives program provides states with additional borrowing permissions as a reward for implementing reforms in the power sector. A total of 12 states have received incentives amounting to Rs. 66,413 crore for their efforts in power sector reforms. Furthermore, an incentive of Rs. 1,43,332 crore will be available in the upcoming fiscal year, 2023-24, for power sector reforms.
Additional Borrowing Space for States:
Under this initiative, states can avail themselves of an additional borrowing space of up to 0.5 percent of their Gross State Domestic Product (GSDP) annually. This financial window is applicable for a four-year period from 2021-22 to 2024-25. However, states can only access this additional borrowing space if they implement specific reforms in the power sector.
Enhancing Operational and Economic Efficiency:
The primary objectives of granting financial incentives for power sector reforms are to improve operational and economic efficiency within the sector. By implementing these reforms, states can enhance the overall performance of their power distribution companies (DISCOMs) and promote sustainable growth in paid electricity consumption.
Eligibility Criteria for Incentives:
To be eligible for the financial incentives, state governments must 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 by the state government.
- Transparency in reporting the financial affairs of the power sector, including the payment of subsidies and recording of liabilities.
- Timely rendition of financial and energy accounts, along with timely audits.
- Compliance with legal and regulatory requirements.
Nodal Ministry for Assessment:
The Ministry of Power serves as the nodal ministry for assessing the performance of states and determining their eligibility for granting additional borrowing permission. By monitoring and evaluating the implementation of reforms, the ministry ensures that states adhere to the stipulated benchmarks and fulfill their commitments towards enhancing the power sector’s efficiency.
Benefits of Power Sector Reforms:
Power sector reforms play a crucial role in ensuring a reliable and sustainable energy supply, promoting economic growth, and attracting investment in the sector. By undertaking reforms, states can strengthen their power distribution infrastructure, reduce losses, improve revenue collection, and enhance consumer satisfaction. These reforms also contribute to the overall development and progress of the country’s energy sector.