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State-owned utilities should have greater autonomy: Niti Aayog

State-owned utilities should have greater autonomy: Niti Aayog

NITI Aayog has proposed greater operational and financial autonomy for state-owned utilities saying there should be a clear separation between the state and utility for the latter to succeed.

“The utility should have operational and financial autonomy. Good corporate governance practices, including the use of independent directors, can help ensure such separation,” the Aayog has suggested in its report.

The report, titled Turning Around the Power Distribution Sector, jointly written by NITI Aayog, Rocky Mountain Institute and RMI India was released on Tuesday.

As per the report, most power distribution companies (discoms) in India incur losses every year with total losses estimated to be as high as Rs 90,000 crore in FY 2021.

“Due to these accumulated losses, discoms are unable to pay generators on time, make investments required to ensure high-quality power, or prepare for greater use of variable renewable energy,” it said in the report.

The report has further suggested delicensing distribution, saying it can introduce competition and enable retail choice for customers. “This reform can be challenging and should be accompanied with careful market design,” it said, adding that the feasibility of competition will depend on the size of the market, the nature of the demand, the efficiency of the incumbent, potential for growth, etc.

“A healthy and efficient distribution sector is essential, whether for improving the ease of doing business, or for improving the ease of life,” NITI Aayog vice chairman Rajiv Kumar said.

The report has further suggested vertical unbundling to enable transparency in operations of the discom. “Vertical unbundling can also be a first step towards implementing privatisation or a franchisee model, if desired,” the report said.

According to the report, the public-private-partnership (PPP) models can be useful in loss-making areas, where commercial operation might not be feasible without support in the form of viability gap funding (VGF) from the government.

Suggesting discoms should reduce power procurement costs, the Aayog in the report has suggested discoms should optimise their power purchase by procuring from the markets as suitable, and they should be rewarded for efficiency gains from the use of the market.

“Discoms should use time of day (ToD) tariffs to incentivise changes in demand patterns. Dynamic tariffs, enabled by advanced metering and a smart grid, can reduce power purchase costs and help manage peak loads,” it added.

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