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News Brief | March 2011

FinMin okays Rs 50,000 crore national electricity fund

In a move to help quicken the flagging pace of distribution reforms in the power sector, the Union finance ministry has approved the creation of a Rs 50,000 crore National Electricity Fund (NEF)-first mooted in the 2008-09 Budget-to attract investment in this area. The ministry has also agreed to provide an interest subsidy for lending under the fund. The power ministry is set to seek Cabinet approval for the scheme, after inviting comments from different departments. The in-principle approval by the finance ministry for NEF, including the interest subsidy mechanism under it, has been received.

The size of the fund will be fixed at the level of the Cabinet. The idea for creating such a fund was originally mooted to help the perennially bankrupt State Electricity Boards (SEBs) to improve their finances and reduce distribution losses. The money raised by the NEF was to be loaned to these boards at low rates of interest.

After the 2008-09 budget announcement for creation of an NEF, a committee headed by the Member (Power) in the Planning Commission, BK Chaturvedi, was set up to work out details. Based on the panel's recommendations, an interest subsidy of Rs 18,438 crore over 14 years on loan disbursements of Rs 50,000 crore was proposed. Any financial institution or bank that lends to distribution companies could be a part of the scheme. The interest subsidy to be provided by the Centre will depend on the size of loan. These loans will have a tenure of 14 years.
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