States to get 2 years for DBT, average cost of supply with discoms to be used: Power Minister

In a sharp deviation from the practiced model of cash transfers, the government proposes to initiate direct benefit transfer (DBT) in the power sector by making payment of 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 finalization and is with the Law Ministry for vetting before being introduced in Parliament, has remodelled DBT structure with states being asked to subsidies tariff for certain identified consumers by transferring the subsidy amount in advance into the electricity accounts of consumers maintained by discoms, Minister of State for Power and New and Renewal Energy R.K. Singh told IANS in an interview.

He said that the said provision has also been made in the new tariff policy which is also with the the Cabinet for final approval.

The minister said that states have been brought on board over the proposed reform initiative and to give time for them to settle with the new system of subsidy, the states would be permitted to delay its implementation by one year, which can be extended for further another year depending on the preparedness of the states.

The new DBT structure for power will change the way the cash transfer schemes work in other sectors. Instead of getting subsidy amount into their accounts while paying electricity tariff at regulators determined rates based on cost of supply, section of households, other subsidized 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 the consumers accounts with discoms. As this payment is proposed to be made in advance, the discoms books could remain in green.

Singh said state governments were apprehensive about launching the DBT scheme as most states don't give subsidy upfront or pay the full subsidy and release balance amounts later. This is not permissible under law that provided upfront payment of subsidy.

"Nonetheless, we recognised this fact that states may not be able to give subsidy uofront everytime and it may get delayed. So, We have provided in the new tariff policy that even if the subsidy gets delayed the consumers may not get affected as electricity will not be disconnected and he/she will continue to pay tariff minus the subsidy payment that had to come from states," Singh said.

It is, of course, expected that the State Government pay the subsidy in advance to the DISCOM/consumers as provided for in the law. The policy will provide subsidy payment in advance by states for a full quarter or three month period.

At present, the electric tariff structure is build on cross-subsidization that means a group of consumers is paying more than the general cost of supply and the surplus is used to subsidize the provision to the other group at a price that is lower than the cost of supply. The level of cross-subsidization 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 subsidized group.

While the Center is not inclined to eliminate cross-subsidies, it wants it 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 cost. The new tariff policy will give states five years time to bring down cross subsidy surcharge to 20 per cent level, Singh said..