WASHINGTON, March 25, 2016 - The World Bank Board today approved a US$ 250 million development policy loan (DPL) to support the government of Rajasthan in improving the performance of its electricity distribution sector under the State’s 24x7 Power for All program.
The First Programmatic Electricity Distribution Reform Development Policy Loan for Rajasthan will be the first in a series of two operations for a comprehensive turnaround of Rajasthan’s electricity distribution sector.
The distribution companies (DISCOMs) in Rajasthan provide electricity to about 9.5 million customers. However, a combination of high generation costs, inefficiencies in the distribution sector and an accumulation of long-delayed tariff adjustments has resulted in several years of continuing losses for the DISCOMs leading to a total outstanding debt of Rs 780 billion as on July 2015.
Last year the Government of India (GoI) announced the Ujwal DISCOM Assurance Yojna (UDAY) program to find a sustainable solution to the financial troubles facing almost all DISCOMs across states. This operation will align with the UDAY program of GoI as well as that of the Rajasthan government’s plans to improve the financial, operational and technical performance of its DISCOMs.
The key areas that the operation will support include: strengthening governance in the distribution sector in the state by giving more operational autonomy to the utilities, establishing targets for reducing the gap between the cost of supply and revenue recovery, providing incentives to employees for improving performance; financial restructuring and recovery in the sector through transferring considerable amount of the debt of the DISCOMs to the state, bringing in more discipline in DISCOMs submissions to regulatory commission towards revenue requirements and initiatives towards reducing the costs of energy procurement; and improving the operational performance of the DISCOMs.
“To make national priorities like `Make in India’ and `Digital India’ successful, it is crucial to have 24x7 power supply. This will not be possible with financially stressed power utilities that are unable to supply adequate power at affordable rates. This operation will support the Government of Rajasthan’s and GoI’s efforts at helping these distribution companies make a financial turnaround and allow for businesses to grow and jobs to be created, ” said Onno Ruhl, World Bank Country Director in India.
The state has issued and notified the Electricity Distribution Management Responsibility Ordinance – the first of its kind for any Indian state – which provides for financial restructuring, long-term planning, corporate governance, regulatory compliance and policy directives. The state government will also lay out clear performance targets with the management of the DISCOMS for better accountability in the sector for which annual Memorandum of Understandings (MoUs) will be signed between the state government and each of the three DISCOMs. The DISCOMs have also developed their Employee Performance Incentive Schemes that provides for a financial incentive to employees based on their performance in reducing Aggregate Technical and Commercial (AT&C) losses in their respective sub-divisions. The state and the DISCOMs have entered into tripartite MoUs with GoI for the implementation of the UDAY program. The state has also set up the Rajasthan Energy Development Corporation Ltd, a company expected to optimize power purchases on behalf of DISCOMS.
“The different initiatives being supported under this operation are expected to bring down the operational losses, improve the realization of revenue, improve employee engagement, improve accountability and transparency in the sector among others and steer the operational and financial health of the distribution sector on a path to sustainable recovery,” said Demetrios Papathanasiou, Lead Energy Specialist and Rohit Mittal, Senior Energy Specialist of the World Bank and Task Team Leaders for the operation.
Measures such as smart and pre-paid metering, regular energy audits, unified billing system, increased usage of IT systems and effective employee engagement are expected to help reduce distribution losses. To address concerns of affordability and access to electricity for the poor, the operation will also support GoI’s Domestic Efficient Lighting Program (DELP), under which more than 10 million LED lamps have been distributed in the state.
The loan, from the International Bank for Reconstruction and Development (IBRD), has a 5-year grace period, and a maturity of 18 years.