Thaindian News

New Delhi, Dec 13 (IANS) The cabinet Tuesday approved the creation of a National Electricity Fund (NEF) to provide interest subsidy of Rs.8,466 crore for electricity distribution projects for a period of 14 years.

“The National Electricity Fund is being set up to provide interest subsidy on loans to be disbursed to the distribution companies - both in the public and private sector,” a statement issued after a meeting of cabinet committee on economic affairs (CCEA).

“The NEF is being set up to improve the distribution network for areas not covered by the Rajiv Gandhi Gramin Vidyutikaran Yojana and restructured accelerated power development and reforms programme project area,” the statement said.

According to the statement, the scheme will become operational within a period of 6 to 12 months and the nodal agency for the fund would be the Rural Electrification Corporation (REC).

“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 statement said.

The statement said the step is being initated to provide relief to the distribution companies.

“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 percent, ranging from 13.10 percent to 61.59 percent for different DISCOMS,” the statement said.

The 13th 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.

Another reason cited by the government for the scheme is that currently there are no scheme for reduction of AT&C; losses in towns with population of less than 30,000.

“While, it is 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,” the statement
further said.

The states in the scheme would be divided into two-categories for working out the interest subsidy to be given to them– the special category and focused states, and states other than that of the special category.

“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, reorganisation of state electricity boards (SEB), release of subsidy, submission of audited annual accounts and timely filing of tariff petition,” the statement

Statement also said that the pre-condition can be modified to overcome any difficulty in operating the scheme by the approval of steering committee, to be chaired by the power secretary.

The interest subsidy of about Rs.8,466 crore would be given on loans amounting to Rs.25,000 crore for distribution schemes sanctioned during the 2 years from 2012-13 and 2013-14.

“The outlay of` Rs.8,466 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 statement added.