India launches electricity distribution revival plan

India has launched a plan to invest 3.04 trillion rupees ($38.4bn) in reviving ailing electricity distributors, with a broader goal to boost the country's power sector.

Prime minister Narendra Modi launched the plan on 30 July, around a year after it was approved by the federal cabinet.

The plan, known as the revamped distribution sector scheme, is aimed at boosting "the operational efficiencies and financial sustainability" of Indian electricity distribution companies, the federal power ministry said.

The plan seeks to provide financial assistance to distribution companies "for modernisation and strengthening of distribution infrastructure", aiming to improve the reliability and quality of electricity supply, the ministry added.

These distributors are predominantly government-owned and considered to be the weakest link in the electricity supply chain, with outstanding payments to utilities, including coal-fired operators, of about Rs1.05 trillion.

The plan is focused on revamping the supply infrastructure and cutting transmission and distribution losses. The power ministry will provide conditional financial assistance to the distributors based on parameters linked to operational improvement under the scheme, which will be available until March 2026.

The steps to revive the distributors is vital to the country's plans to expand generation and power its economy. The plan will also involve prompting distributors to install pre-paid smart meters and upgrade systems, among other measures to achieve operational efficiency.

The financial health of the distributors has weakened over the years with irregular revisions to tariffs to cover costs and sustain free cash flow. These firms have borrowed heavily from state-controlled financial institutions to pay utilities and meet other working capital needs. This has also weighed on generation at utilities given the inability of distributors to increase electricity purchases because of the financial turmoil. This has in turn pressured operations at state-controlled coal producer Coal India as utilities delayed payments for coal supplies.

Delhi has proposed amending existing electricity legislation to support overall plans to revive the ailing distributors. The amendment includes provisions on regular tariff revisions, as well as steps to trim distribution losses.

By Saurabh Chaturvedi