Thursday, May 10, 2012


Power sector needs more dynamic reforms

Come summers, and the nation is set to face erratic power supply, frequent power cuts, and inflated electricity bills, once again! In spite of having myriad of sources for electricity, India has failed to provide its citizens with non-stop power supply. Leave aside the state of power supply in villages, even in the capital city, electricity cuts is a norm.

The power wastage would continue to take its toll unless radical reforms are not put in place at the earliest. At the want of some drastic reforms in power distribution, losses can spiral up to 1.2 per cent of India’s nominal GDP by March 2014, according to an independent research by Avendus Securities. The populist agenda of not hiking power tariff are common in majority of the states thus stoking up the losses. Reports suggest that losses augmented to 0.9 per cent in FY 2010, a sea change from just 0.6 per cent in FY 2006. The power loss is eating away monstrous proportions with accumulated wastage being estimated at 23 per cent of the total input energy.

The two biggest intractable factors that lead to such mess are the chaotic fuel situation and nonviable populist propaganda of charging lower price than the market prices. This is clear from the fact that state electricity boards and distribution utilities together have registered an insurmountable loss of Rs.3 lakh crores at the end of FY 2010-11. The CRISIL report further elaborates the financial shortcomings and estimates that at least one-third (of the total 56,000 MW capacity) of our thermal power plants have uncertain generation due to the same factors.

Decoding this problem Montek Singh Ahluwalia proposed privatisation of State Electricity Boards by dismantling them into separate companies whose business model is guided by generation-transmission-distribution! However, the model never saw itself fructifying. Privatization would have allowed power generating companies to sell their product directly to the distribution companies and then to the end consumers. Thus, allowing market forces to determine the investment, efficacy, and pricing, on a whole.

No doubt, India’s impressive economic progress needs to be complemented with increased power generation. However, it will be a self-defeating policy if the increase is not backed by plugging the power wastages. To do that efficiency must form the cornerstone along with checking corruption. The production must be based on backward integration led strategies where the end user is given the priority. This shadowy scene must be replaced by state-of-the-art distribution and consumers must be courted with world class delivery mechanism.

The 11th Five Year Plan picked up the cause of power generation reforms as an utmost need to sustain 8.5 per cent economic growth. There have been a number of tryouts over the last decade but none have been overtly successful. Most of these failed due to flawed doctrines while others lacked practicality. Even ex-World Bank President in 2002 criticized India’s loss making power plants as the basis for poor power supply scenario in India. Such malaise not only adversely impacts the power sector but creates huge negative externalities for all connected sectors. Power sector today is more concerned about profits of coal suppliers and the middlemen rather than the consumer who finally pays the bills. What else can one expect from the nation where priorities and value chain moves in reverse gear.


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