The Government is planning to set up a national electricity fund (NEF) with a corpus of Rs 1 lakh crore for investment in the transmission and distribution sector. The Central Government will be contributing Rs 51,000 crore spread over five years to this fund, of which Rs 20,000 crore will go towards equity and the rest will be provided as interest-free debt. State governments will also contribute Rs 10,000 crore from their own funds towards the equity of projects.

In addition, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) will mobilise debt funds from the market and provide concessional loans amounting to Rs 39,000 crore.

The proposed NEF will provide much-needed financial support to state distribution companies—through equity and interest-free or concessional loans—for new projects, and strengthening of existing power transmission and distribution infrastructure. When contacted, a power ministry official said, “The NEF proposal is currently under discussion in the ministry and the modalities are still being worked out.”

To provide sweeteners to make the NEF work, it is proposed that PFC and REC be given access to cheaper funds through instruments like tax-free power bonds, 54EC capital gain bonds and infrastructure bonds under section 80C.

In addition, the Government will also consider relaxing external commercial borrowing guidelines to allow PFC and REC to borrow cheaper funds under the “automatic route”, besides giving access to long-term SLR funds specially dedicated to the NEF. It is expected that the funds would allow tariffs to be kept low so that there is no backlash to the reforms projects.

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