New Delhi: 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
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
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
"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.