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Investment Guru India 2020-06-28 09:10:31

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In a sharp deviation from the practised model of cash transfers, the government proposes to initiate direct benefit transfers (DBT) in the power sector by making payment of the subsidy into the accounts of consumers maintained by discoms and not directly into their bank accounts.

The amendments to the Electricity Act, 2003 (Electricity Amendment Bill, 2020) which is in last leg of finalisation and is with Law Ministry for vetting before being introduced in Parliament, has remodelled the DBT structure with states being asked subsidise tariffs for certain identified consumers by transferring the subsidy amount in advance into the electricity accounts of consumers maintained by discoms. The said provision will also be made in the new tariff policy which is also under finalisation.

What this change will do is that instead of getting subsidy amount into their accounts while paying electricity tariff at regulators' determined rates based on cost of supply, a section of households, other subsidised consumers and those identified by state for relief will continue to pay lower tariff as is the case now, while the gap between average cost of supply (ACS) and the actual tariff, will be paid by the state governments into consumers' accounts with discoms. As this payment is proposed to be made in advance, the discoms books could remain in green.

At present, the electric tariff structure is built on cross-subsidisation that means a group of consumers is paying more than the general cost of supply and the surplus is used to subsidise the provision to the other group at a price that is lower than the cost of supply. The level of cross-subsidisation in India varies from 15 to over 50 per cent which means that commercial and industrial consumers pays that much more to lower tariff for subsidised groups.

While the Centre is not inclined to eliminate cross-subsidies, it wants these to come down to 20 per cent level progressively while allowing State Electricity Regulatory Commissions to fix cost reflective tariff that helps discoms at least to recover their costs.

To make sure that in the remodelled version of DBT consumers do not suffer, the new Tariff Policy would propose that the electricity supply will not be discontinued even if the state government is unable to pay the subsidy in time or even if the state government fails to pay the subsidy for 3 to 4 months. Therefore, the consumer's interest will be duly protected.

It is, of course, expected that the state government will pay the subsidy in advance to the discoms/consumers as provided for in the law.

"It may be noted that the DBT will be beneficial for both the state governments and as well as distribution companies (discoms). It will be beneficial for the state government because it will ensure that the subsidy reaches the people who are actually entitled and the state government gets clear accounts of the amount given as subsidy. It will benefit the distribution company by making sure that the subsidies due are received as per the number of beneficiaries," a Power Ministry official said.

In the DBT structure for power, either the subsidised consumer will pay lower tariffs or cost reflective tariff as determined by the SERCs. In the case of latter, discoms will give them rebate on their monthly billing based on the level of subsidy received in power accounts.