Govt announces reforms to strengthen electricity distribution, transmission

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Finance Minister Nirmala Sitharaman in her Budget speech 2025 on February 1 said the government will incentivise electricity distribution and augmentation  of intra-state transmission capacity by states amid efforts to  improve financial health and capacity of power firms.

"An  additional borrowing of 0.5 percent of GSDP (Gross State Domestic Product) will be allowed to states, contingent of these reforms," Sitharaman said.

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For several years, electricity distribution companies (DISCOMs), which are primarily state-owned, have faced significant financial losses.  Total accumulated losses of state Discoms reached a staggering Rs 6.5 lakh crore by 2022-23, according to reports.

"The extra borrowing allowance provided to states, contingent on the implementation of reforms, will also strengthen the operational efficiency and financial health of power distribution companies, ensuring that the benefits of clean energy reach all corners of the country," said Naresh Mansukhani, CEO, Juniper Green Energy.

Poor billing and collection, delays in tariff orders, no inflation adjustment in power purchase agreements and expansive power subsidies are some of the main reasons 68 state-run discoms are suffering losses, Shripad Naik, Union minister of state in the power ministry, said last year.

On January 30, Minister for Energy Gottipati Ravi Kumar held a virtual meeting  for addressing issues related to viability of distribution utilities. He highlighted  that year on year gap between the average cost of supply (ACS) and the average revenue realized (ARR) is eroding the financial stability of the utilities which needs to be brought down. This gap is largely due to under-recovery of costs esp. power purchase costs, non-cost reflective tariffs, distribution losses, etc.