New Delhi: In what may be a game changer for India’s beleaguered electricity distribution sector, the National Democratic Alliance (NDA) government is considering setting up a pan-India power distribution company, said two people aware of the development.

The idea to set up a National Electricity Distribution Company is being explored, given that the segment will be key to the long-term fortunes of the power sector. Distribution companies have so far been the weakest link in the electricity value chain. Poor payment records of state-owned electricity distribution companies (discoms) have not only adversely affected power generation companies, but has contributed in causing stress in the banking sector as well.

Rising non-performing assets (NPAs) in the power sector has been a major concern. The problem only multiplies with the states refusing to ink new power purchase agreements (PPAs), as they are not willing to buy more electricity.

In such a situation, a national electricity distribution company can procure electricity at competitive rates and help address the issue of stressed assets in power generation. The NPAs account for around 5.9% of the banking sector’s total outstanding advances of 4.73 trillion, according to the Economic Survey 2016-17 released in August.

The Economic Times on Tuesday reported the Centre’s plan to set up a national discom. “The idea is at an exploratory stage. We are looking at whether a national electricity distribution company can be set up along the lines of EESL (Energy Efficiency Services Ltd), which is under the administrative control of the power ministry," said a government official, requesting anonymity.

EESL is an energy services company, jointly operated by four state run firms—NTPC Ltd, Power Finance Corporation, Rural Electrification Corporation and Power Grid Corp. of India Ltd.

A second government official, who also requested anonymity, confirmed the development. However, email queries to a power ministry spokesperson on Monday evening remained unanswered.

The development comes at a time when the Centre has set a December 2018 deadline to provide electricity connections to more than 40 million rural and urban households under the Saubhagya scheme. The 16,320 crore Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or Saubhagya scheme, which was launched last year, is expected to boost electricity demand in the country.

Experts welcomed the move. However, they were of the opinion that the public sector company will require the support of state governments and state regulatory electricity commissions (SERCs) to become a success.

“Idea of a national retail supply company is worth exploring in the medium- to long-term. It can usher in competition across incumbent utilities and provide choice to customers below 1MW. The company could become the second licensee across states post segregation of network and retail supply with the state government owning the network company along with the incumbent retail supply license," said Sambitosh Mohapatra, partner (advisory, power and utilities), PwC India.

The government has been working on a radical plan to separate the so-called carriage and content operations of existing power distribution companies, which was earlier proposed by the United Progressive Alliance (UPA) government. Carriage refers to the distribution aspect and content to electricity. In industry parlance, these are known as “wire" and “supply". The separation will allow people and companies in India buy electricity from a power company of their choice, and have it supplied to them by the distribution network that services the neighbourhood in which they live.

“Some of the issues which needs clarity is around the transition period for ushering this, segregation of losses, provider of last resort, universal service obligations, standards of performance, ownership of metres and customer information, cross subsidy and subsidy transfer management," Mohapatra added.

According to power minister Raj Kumar Singh, the discom’s losses had narrowed to 17,352 crore in 2017-18 from 51,096 crore in FY16.

The proposal comes at a time when the Centre is looking to introduce several other reforms in the proposed draft national tariff policy, including penalty on gratuitous load-shedding, not allowing losses of more than 15% as a pass through in tariff and limiting cross-subsidies. The new rules are expected to come into force from the next financial year. The policy also proposes suspension of licence in case of non-availability of adequate power supply arrangements and imposition of penalty in case of disruptions in supply to consumers.