The government plans to set up a national electricity distribution company (NEDC) as an equal joint JV between the state-run NTPC Ltd and Power Grid Corp. of India Ltd
It will undertake electricity distribution by forming JVs with state-owned discoms and help bridge market and credit risks
1) What are NEDC’s objectives?
The aim of the NTPC-PGCIL joint venture is to act as a model discom, thereby improving efficiency and helping resolve the vexed issue of rising non-performing assets in the power sector. Given that electricity is on the concurrent list, NEDC will not only act as a nodal agency for implementing the Union government’s scheme in the distribution sector, but also serve as an implementation agency for state discoms. It will act as the beachhead for introducing distribution sector reforms and help bring new tech, including smart grids, big data and analytics, into fund-starved discoms.
2) Why is it needed?
The need for a pan-India discom was felt given that distribution will be key to the long-term fortunes of the power sector. Discoms have so far been the weakest link in the electricity value chain. Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector. In such a situation, a national electricity distribution company can be a precursor to “carriage and content operations" and be used for asset and network management. It may also procure electricity at competitive rates and help address the issue of stressed assets in power generation.
3) How will it work?
Given that NEDC will have to seek licences from the respective state electricity regulatory commissions, the process will be tedious and unfeasible as this will create an adversarial relationship with the state discoms. The game plan is to form JVs with existing discoms, thus leveraging the experience of state-run firms such as NTPC and PGCIL to improve efficiency in areas such as system and network operations, asset management, and operations and maintenance. The state-run units can leverage their technical expertise, competence and access to cheaper funds to act as a change agent in electricity distribution.
4) What are the benefits?
Better functioning of state discoms will help reduce overall transmission and commercial losses, and help meet the increased power demand due to electricity connections provided to rural and urban households under the Saubhagya scheme. It will help expedite the plan to separate the “carriage and content operations" of discoms, letting people and companies in India buy electricity from a firm of their choice.
5) What is the trigger for such a joint venture?
The government is trying to step up efforts to supply 24x7 power to all. But this can’t be achieved unless there is a robust electricity distribution space. The poor financial health of discoms has led to delayed payments to generation utilities. Hence, the government has made it mandatory for state discoms to offer letters of credit as part of the payment security mechanisms in power purchase pacts to ensure timely payments by states to generation utilities.