Budget may bring in revised power reform programme

Aimed at reducing transmission and distribution losses on a large scale, the government is expected to roll out the new revised...

Aimed at reducing transmission and distribution (T&D) losses on a large scale, the government is expected to roll out the new revised Accelerated Power Development and Reform Programme (APDRP) that links fund release to states effectively cutting losses to 15 per cent on a sustained basis.

An announcement to this effect is expected in the Budget for 2008-09, where close to Rs 50,000 crore is going to be allocated to this scheme over a five-year period.

Even tough this scheme is not approved by the Cabinet, it is learnt that the Finance Ministry has given its consent to the scheme with some modifications. PM Manmohan Singh has stressed on the importance to introduce a “crash programme” aimed at reducing the T&D losses in the power sector, which average above 35-40 per cent.

The difference in the new scheme is that fund release to states would be directly linked to actual quantifiable targets being achieved, where the state has to show they have brought down loss levels to 15 per cent. This loss cannot be one off but has to be sustained over a period and is subject to an independent third party verification.

Under the existing scheme launched in 2003, the Centre pitches in with grant funds for states to undertake distribution reforms with the Centre willing to extend as much as 90 per cent of funds as grant for special category states. For non-special category states, the Centre gives 25 per cent of the funds as grant and 25 per cent as loans.

Under the revised APDRP however, the funds released by the Centre would initially be as loans to states and would get converted as grants only after the concerned state demonstrates that they have met the loss reduction target.

What is interesting from the Budget point of view is, in case this is implemented, funds to states would, in initial years, get reflected as loans and not grants in the government’s books.

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In terms of accounting purposes, this will help in pulling down revenue deficit (as loans to states get reflected as non-plan capital expenditure as against grants reflected as non-plan revenue expenditure) until the loan is converted to grant.

It is learnt that of the Rs 51,000 crore earmarked for the revised APDRP, around Rs 40,000 crore would be for investment purposes and another Rs 10,000 crore for building an IT backbone for the power sector that would help in maintaining better account of the power flows.