Inflation-linked power tariffs, debt reduction of discoms discussed at GoM meet

New Delhi: The group of ministers (GoM) for addressing issues related to viability of electricity distribution utilities in its latest meeting discussed linking power tariffs to inflation in order to make them more cost-reflective.

In the meeting held on Saturday the GoM along with key stakeholders in the power distribution sector also discussed the delays in payment of dues and subsidies by government departments, which have forced discoms to resort to take out working capital loans which do not reflect in their tariffs.

The meeting was chaired by the union minister of state for power and new & renewable energy Shripad Yesso Naik. This was the third meeting of the GoM.

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"It was discussed that delays in payment of government department dues and subsidies are forcing DISCOMs (distribution companies) to resort to working capital loans, which are not being passed on in tariff. There are also delays in passing on of Fuel and Power Purchase Cost Adjustments in tariffs thus creating need for working capital which are not considered in Annual Revenue Requirements of the Utilities. To avoid future tariff shocks, it was suggested to link tariffs to annual inflation-linked tariff hike," said an official statement.

In the past few years, the Centre has been emphasizing on discoms charging cost-reflective tariffs in a bid to improve their financial viability.

Stress on performance review

The meeting also emphasized the need for review of regulators' performance for determining tariffs. Government support for privatization initiatives was suggested. The GoM and the stakeholders also discussed the need for regulators to adapt to the latest developments in the sector including the current levels of RE integration, the requirements of capacity building and O&M costs, while finalizing the tariff.

The meeting was attended by energy ministers frm Uttar Pradesh, Andhra Pradesh; Pradyuman Singh Tomar, Madhya Pradesh and Maharashtra. It was also attended by senior officials from the central government, state governments, state power utilities of member states, Power Finance Corporation (PFC) Ltd and REC Ltd.

Addressing the meet, Naik highlighted the discussions held during the first two meetings of the GoM and the collective efforts required from the states for improvement of power distribution sector. He highlighted the need for designing a mechanism for financial restructuring of liabilities of distribution utilities, lowering interest burden on utilities, development of storage solutions, facilitating daytime power supply for agriculture to lower the overall power purchase costs and reduce subsidy burdens.

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He also stressed the need for implementing AI and digital innovations and need for ensuring cost-reflective tariffs for financial viability of power sector, while adding that implementing these measures shall help utilities improve the financial sustainability. He also emphasized the need for a scheme similar to UDAY.

In November last year, the union power ministry suggested states consider listing their power utilities including generation, transmission and distribution companies which are financially viable, in a bid to raise funds and increase operational efficiency. Power minister Manohar Lal had then said that there would be a requirement of ₹42 trillion of investments into the power sector by 2030 for which fundraising avenues need be looked into.

The next meeting of the GoM would be held in Andhra Pradesh next month.

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