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Direct benefit transfer: bringing subsidy reforms in power sector

SecureDirect benefit transfer: bringing subsidy reforms in power sector

Articles

The distribution sector is a key link in the entire power sector business value chain and stands as a cash register for it. However, the financial health of distribution Licensee (Discom) is not in good shape. Non-realisation of electricity subsidy is a major concern, since the subsidy contributes 10 to 30 per cent of a Distribution Licensee’s total revenue. The major concerns in the current subsidy management practices of Discoms are:

1.Distribution Licensee

  • Unmetered consumers
  • Poor revenue realisation
  • Delay in subsidy payments

2.State government

  • Bulk subsidy disbursement
  • Estimation-based subsidy claims
  • Lack of transparency

3. Consumers

  • Less energy / subsidy information
  • Limited supply hours
  • Power quality
  • Accumulated billing

Looking at the success of subsidy management for other energy sources, adopting Direct Benefit Transfer (DBT) in electricity could be a solution. Ministry of Power (MoP), Government of India, through Electricity Amendment Bill 2020 and draft National Tariff Policy 2018 has also proposed electricity DBT. This will help to bring financial sustainability of Discoms and transparent subsidy disbursement to intended beneficiaries.

In line with the vision of the MoP for transition to pre-payment mechanism across the electricity procurement value chain, DBT with pre-paid metering can again help in achieving the intended transparency and efficiency in subsidy management.

Key enablers

  • Beneficiary identification
  • 100 per cent pre-paid metering
  • Transparent subsidy calculation
  • Right governance
  • Payment convenience to consumers

DBT in electricity requires close coordination among all stakeholders, therefore a single entity, end-to-end responsibility implementation approach with pre-paid metering and communication facility can serve the purpose. The solution provides options for both approaches to implement DBT – subsidy to consumer’s account or subsidy to Discom’s consumer’s account. States have a choice to adopt either. Under subsidy transfer to consumer’s account, consumer pays for the electricity as per his / her convenience and the meter gets recharged remotely. Under subsidy transfer to Discom’s account, the subsidy amount will also be added to the meter remotely.

Figure - Effective DBT implementation process flow
Figure – Effective DBT implementation process flow

Subsidy is automatically calculated based upon electricity consumption. Measured subsidy details are securely and electronically transferred to the state government for processing the subsidy as per DBT implementation method (as shown in the figure). Consumers will be informed through SMS, as and when they purchase electricity and subsidy is received in the meter. The solution is intended to improve operational efficiency and reduce cost-to-serve of Discoms, and will provide below mentioned benefits:

1. Discom

  • Timely and complete revenue assurance.

2. State government

  • Transparent and efficient subsidy calculations and disbursement.

3. Consumers

  • Convenience to buy electricity as per requirement and budget.