Energy policy may bring subsidy cut, price control in power, fertilisers

index.jpgSource: The Economic Times, Mar 08, 2017

NEW DELHI: The government will soon outline comprehensive energy sector reforms that could free up sectors such as coal, electricity and fertilisers of subsidies and price controls, helping produce more power and make generation projects commercially viable for private companies.

The policy could also give greater emphasis towards improving the financial condition of power distribution companies (discoms), which are bogged down by debt, to make the sector profitable in the medium to long term.

Key suggestions being considered include overhauling the entire structural and functional capacity of discoms so that they operate more professionally.


Official sources told ET that after intense deliberations held for more than a year with stakeholders, the government’s premier think-tank Niti Aayog has firmed up the National Energy Policy and the first draft will soon be made public.

According to people who spoke to ET requesting anonymity, the electricity and fertilizer sectors are heavily subsidised, which is why their input costs cannot be increased as of now.“There is a need to bring down subsides in such sectors and the energy policy is expected to lay out a clear roadmap for lowering subsidies and aligning their prices to that of the market,” one of the people said.

State discoms should run on commercial lines, either be privatised or run in private-public partnership mode or as a franchise to become profitable, according to Praveer Sinha, managing director of Tata Power Delhi Distribution.

“While the Central government policies related to the sector are in the right direction, state utilities have to transform in a big way. Enough manpower capacity should be created to run them professionally and there should be integration of technologies between discoms,” said Sinha, who was part of the initial deliberations on the proposed policy.

Ajay Mathur, director general of research institute TERI, is of the view that electricity reforms and coal supply are important to make the power sector commercially viable as well as available to all.

“India’s energy sector needs continuation of strategic procurement policy for oil and gas while harmonising the domestic market.

“Besides, the policy should focus on long-term strategy in the electricity sector to move towards renewables,” said Mathur, who too took part in the initial discussions on the policy.

The Central government rolled out the Ujwal DISCOM Assurance Yojana (UDAY) to help discoms become profitable while finding a permanent solution to their financial mess. The scheme aims to provide a permanent solution to their legacy debt of about Rs 4.3 lakh crore and address potential future losses.

The scheme comprises four initiatives for discoms – improving operational efficiency, reducing cost of power, lowering interest costs and enforcing financial discipline through alignment with state finances.

The turnaround scheme allows state governments, which own the debt-laden discoms, to take over 75% of their debt, as of September 30, 2015. Discoms are expected to issue bonds for the remaining 25% of their debt.

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