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 for attracting investment in this area. The ministry has also agreed to provide an interest subsidy for lending under the fund.
The idea for creating such a fund was originally mooted to help the perennially bankrupt State Electricity Boards (SEBs) to improve their finances. The money raised by the NEF was to be loaned to these boards at low rates of interest.
A committee headed by the Planning Commission suggested an interest subsidy mechanism wherein the Centre would bear a part of the interest cost of funds raised by a state utility for distribution projects. An interest subsidy of Rs 18,438 crore over 14 years on loan disbursements of Rs 50,000 crore was proposed. Any financial institution that lends to distribution companies could be a part of the scheme. The interest subsidy would depend on the size of loan.