FinMin allows 5 states to borrow Rs 2,094 crore after power sector reforms

Ministry of Finance has granted five states additional borrowing permission after they implemented mandated power reforms. Bihar, Goa, Karnataka, Rajasthan and Uttarakhand were allowed to borrow Rs 2,094 after they successfully reduced either aggregate technical and commercial (AT&C) losses or the average cost of supply and average revenue realization (ACS-ARR) gap. Successful implementation of these reforms has made these five states eligible for additional borrowing limit of Rs 2,094 crore.

Reduction in AT&C losses and ACS-ARR gap are two of the three power sector reforms stipulated by the Department of Expenditure, Ministry of Finance. States can avail of additional borrowing in lieu of implementing these reforms.

States get permission to borrow 0.05 per cent of the Gross State Domestic Product (GSDP) for meeting the target set for the state for reduction in AT&C losses and an additional 0.05 per cent of GSDP for crossing the ACS-ARR gap target.

Uttarakhand has achieved the targets for reduction in both AT&C losses and ACS-ARR gap. AT&C losses in Uttarakhand have been reduced to 19.01 per cent, while ACS-ARR gap has been reduced to Rs 0.36 per unit.

Goa has brought down the AT&C losses to 11.21 per cent against the target of 13.53 per cent. Karnataka has surpassed the ACS-ARR gap target of Rs 0.50 per unit by reducing the gap to Rs 0.44 per unit.

Rajasthan has bridged the ACS-ARR gap to Rs 1.16 per unit against the target of Rs 1.40. Meanwhile, Bihar has reduced in ACS-ARR gap in the state by 10 per cent.

Besides these five states, Andhra Pradesh and Madhya Pradesh have undertaken the third reform in the power sector - Direct Benefit Transfer (DBT) of electricity subsidy to farmers. Consequently, these two states were given additional borrowing permission of Rs 2,938 crore, equivalent to 0.15 per cent of their GSDP.

These seven states, who have undertaken power sector reforms so far, have been granted cumulative additional borrowing permission of Rs 5,032 crore. This has provided the much-needed additional financial resources to the states to fight the COVID-19 pandemic and enhance capital expenditure, Ministry of Finance said in a statement on Friday.

Given the resource required to meet the challenges posed by the COVID-19 pandemic, the government had on May 17, 2020, enhanced the borrowing limit of the states by 2 per cent of their GSDP. Half of this special dispensation was linked to undertaking citizen-centric reforms by the states.

Till now, 21 states have carried out at least one of the four stipulated reforms and have been granted reform linked borrowing permissions. Total reform linked additional borrowing permission issued so far to the states stands at Rs 91,667 crore.