Budget 2023: Power sector’s Revamped Distribution Sector Scheme may get a boost

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For the Union Budget 2023, the power ministry has proposed to increase the budget outlay for its flagship Revamped Distribution Sector Scheme (RDSS) with an aim to cover more households with prepaid smart meters and reduce the aggregate technical and commercial (AT&C) losses of the country.

Senior power ministry officials also said the Smart Meter National Programme (SMNP) will gain momentum in FY 2023-24 with a number of companies getting into the smart metering business. SMNP had sluggish growth in the last two years due to the COVID-19 pandemic and the global shortage of chips and semiconductors.  So far under RDSS, as many as 17,34,39,869 prepaid smart meters, 49,02,755 distribution transmission (DT) meters and 1,68,085 feeder meters have been sanctioned across 23 states, which comes to about 40 discoms. The total sanctioned cost for this has been Rs 1,15,493.79 crore.

RDSS is meant to be a facilitator to improve the operational efficiencies of discoms and help reduce their losses and make them financially sustainable. The scheme aims to reduce technical and commercial losses to pan-India levels of 12-15 percent by 2024-25 and cut the cost-revenue gap to zero by 2024-25.

In the current fiscal year, the budgetary outlay for RDSS is Rs 7,565.59 crore. “The power ministry has proposed to the finance ministry to double the allocation to about Rs 15,000 crore for the scheme in the upcoming budget. But, it finally rests on the finance department as to how much they approve in the budget,” said a senior power ministry official requesting anonymity.

“A lot of projects have been sanctioned under this scheme already and many will start taking shape in the next one to two years. So, the scheme will require sustained funding for at least two consecutive years,” the official added.

Although spokespersons of the finance ministry did not comment on whether the proposal of the power ministry has been accepted or not, a second senior power official said the Prime Minister’s Office (PMO) is “very serious” about bringing the AT&C losses down to single digits in the next few years. “And therefore, the increase in budgetary allocation for the scheme is likely to happen. But by chance, it is not mentioned in the Union Budget 2023, the increased allocation will definitely follow in the next few months this year,” the second official said.

On December 22, Union power minister RK Singh told the Parliament that AT&C losses of distribution companies (discoms) have declined to 17 percent in FY 2022 from 22 percent in FY 2021. This, he said, was based on the preliminary analysis of data of 56 discoms, which contribute more than 96 percent of the country's input energy.

AT&C loss is one of the key indicators of the performance of discoms. The losses directly impact the cash flow position of discoms and further worsen their financial position. High losses force the discoms to supply costly electricity to consumers.

A reduction in AT&C losses improves the finances of the utilities, which further enables them to better maintain the system and buy power as per requirements, thereby benefitting the consumers.

“The ministry of power has decided that any future assistance under any scheme for strengthening of the distribution system will be available to a discom, which is making losses, only if it undertakes measures to bring down its AT&C losses and the average cost of supply (ACS)-average revenue realised (ARR) gap to specified levels, within a specific timeframe and gets their state government’s commitment to it,” Singh told the Lok Sabha on December 22, 2022.

On December 5, the power ministry in a statement said that the ACS-ARR gap declined from Rs. 0.69/kWh in FY 2021 to Rs. 0.22/kWh in FY 2022. The government's target is to reduce ACS-ARR gap to zero by 2024-25.

The RDS scheme states that funding under the scheme will be available only if the discom commits to an agreed loss reduction trajectory.

The scheme was first announced in 2021 and on July 30, 2022, Prime Minister Narendra Modi launched the five-year-long RDS scheme with an outlay of Rs 3,03,758 crore and an estimated government budgetary support (GBS) of Rs 97,631 crore from the central government.