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India's Smart Meter National Program Set to Revolutionize Power Distribution: CRISIL

Projected to involve a capital expenditure of INR 1.5 lakh crore, the SMNP is slated for implementation over the next five fiscal years.

April 02, 2024. By Abha Rustagi

As per the latest report by CRISIL Ratings, the Smart Meter National Program (SMNP) initiated by the Government of India is primed to introduce a surge of efficiency and modernization throughout the nation's power distribution sector.

With plans to replace 25 crore conventional electricity meters with prepaid smart meters, the program aims to not only upgrade power distribution infrastructure but also enhance the operational and financial performance of distribution companies (discoms).

Projected to involve a capital expenditure of INR 1.5 lakh crore, the SMNP is slated for implementation over the next five fiscal years. This investment is expected to stimulate private sector participation and facilitate the widespread adoption of smart meters across the nation.

Ankit Hakhu, Director of CRISIL Ratings, emphasized the transformative potential of SMNP, stating, "At an average price of ~INR 6,000 per smart meter including ancillary costs, SMNP is expected to provide an INR 1.5 lakh crore capex opportunity in India’s power distribution landscape." He highlighted the prepaid nature of smart meters as a key factor in improving discoms' collection efficiency, further supported by grants from the central government.

The program incorporates innovative features aimed at mitigating risks and enhancing bankability. Varun Marwaha, Associate Director at CRISIL Ratings, highlighted the significance of standardized smart meter project contracts, stating, “Another notable innovation of the SMNP programme is the requirement of a direct debit facility (DDF) under which all online payments from the consumers of discoms get deposited in the DDF account. From this account, annuity payments to the project’s bank account is prioritised. This reduces the risk of payment delays or non-payment from the discoms to projects, one of the key risks in the power sector.”

Despite its potential benefits, the SMNP also faces challenges, particularly regarding aggressive bidding and its impact on project credit quality. Lower cash flows against debt taken for financing capital expenditure could potentially affect debt service cushions and project credit quality. Additionally, the success of the INR 1.5 lakh crore capex projection hinges on prudent bidding practices and the pace of award to private concessionaires. 
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