India is set to renew efforts to revive ailing electricity distributors amid broader plans to boost the power sector and expand electricity provision.
State-owned electricity distribution companies—the weakest link in the electricity supply chain—have total dues owed to power generators nearing 800bn Rupees ($11.18bn) by the end of 2019, power minister Raj Kumar Singh said after the federal budget was presented on 1 February.
Efforts will review the existing programme for the distributors' debt reduction as well as launch new government initiatives after discussions with state governments. State-owned power sector lender Power Finance will set up an alternate investment fund to help the distributors repay their debt. "If you don't reduce loss, we will not be able to help you," the minister said, underscoring the conditional nature of the proposed plan.
Distributors have been forced to borrow heavily from state-run financial institutions over the years to pay the generators, given their inability to raise power tariffs and cover their costs. This has weighed on generation too because the distributors have been unable to increase electricity purchases, thus hurting the goal of providing power to all.
Last year, prime minister Narendra Modi extended the target for reaching India's goal of providing power for all to 2022, from 2019.
The government also hopes that efforts to replace the existing electricity meters with prepaid smart meters in the next three years would help to reform distribution companies, finance minister Nirmala Sitharaman said in her budget speech. But the budgetary allocation for the power ministry was left unchanged in the April 2020-March 2021 financial year from a year earlier.
Support for generators
The finance minister also announced a concessional 15pc corporate tax for new power plants that start operations by 31 March 2023, to help attract investment in the sector. Corporate tax for operational firms currently stands at 22pc. The move is in line with India's plan to boost its generation capacity, especially from renewable sources.
The government also plans to set up solar capacity on barren farm land as well as alongside railway tracks. Sitharaman's speech referred to some amendments to customs tax on solar cells, but there remains a lack of clarity over the potential plan to tax imported solar power equipment, although the rationale could be to boost domestic production.
The government did not heed the industry's request to remove a carbon tax on domestic and imported coal. The industry has called for the scrapping of this levy to cut costs and likely leave more money in the hands of coal-fired power stations to meet a government directive of installing emission cutting equipment.
More than half of India's generation capacity is coal fired with hundreds of power stations mandated to meet the regulatory requirement by 2022. India will shut at least 29 old and polluting power plants by 2022 as they will not be able to meet the pollution-curbing directive.
