Power Sector - Reforms Imperative
G Bharathi
 

Power is a key input in every industry. It is a basic infrastructure required for economic development. Even after fifty years of independence, we face power shortages, grid failures and blackouts in the country. The power shortage in India is 5.9%and the peak shortage is around 14%. Till 1999, we had a generating capacity of only 97,000 MW. In order to meet our requirements, an additional capacity of one-lakh megawatts is required, with an additional investment of $100billion over the next 15 years.

Table 1.1

The state electricity boards being almost bankrupt in many states, and majority of them earning a negative rate of return, the government’s budgetary situation fast depleting, it is imperative to invite the private sector to participate and bring in huge investments and in turn contribute in the long run towards the economic development of the country.

There has been a state monopoly over the power generation, transmission and distribution since 1956. All new investments in these areas were brought under the public sector. Over these years the SEB’s have become a burden on the public exchequer, admitting to the fact that 18 out of the 20 boards are facing losses. If the present situation continues, SEB’s will have a negative internal rate of return in the next 10 years. The main causes for these losses varies from financial aspects like that of low capital investments, resource shortages, irrational and un-remunerative tariff structure (Table1.2) and high cost of power generation.

Tariff Structure

The technical reasons include the age old, inefficient and outdated plants, delay in the project implementation, low voltage distribution network, etc. The political reasons of overstaffing and subsidized supply of power to the agricultural community cannot be overlooked. The agricultural community consumes 30%of the power, but contributes only 3-4%in the revenue generation. The total subsidy to the power sector alone amounts to a whooping Rs. 22 billion.

The peak load factor (PLF) which indicates the performance of the power plants is 64.7% in India when compared to 85-90% in developed countries.

The total transmission and distribution loss amounts to 22%and upto 50%in some states like Delhi. The losses upto 12% is considered normal under any plant.

The demand for power is continuously growing at a rate of 7.5- 8%over the last decade. The generation growing at a much slower pace (5.94%) resulting in a continuous deficit and shortages. One important reason for shortage is huge dependence (72%) on the traditional sources (non-renewable) of supply than on the renewable sources like that of wind, nuclear, solar, biowaste and hydel.

Table 1.3
Growth trends in the installed power generation
                                                                                                        In MW 

                   Source: Ministry of Power

To save the economy and the SEB’s from financial bankruptcy and imbibe fiscal discipline in them restructuring of the power sector becomes very urgent. Reforms may eliminate political interference, remove infrastructural bottlenecks, and participation of the private sector may lead to better services to the customer. Reforms can also become a catalyst to improve the performance of this sector through increased competition.

The FICCI seminar on “Restructuring of PSU’s” had come up with a four-phase reform strategy. In the first phase, the SEB’s need to be unbundled and appropriate legal and regulatory framework to be established. In the second phase corporatization, commercialization and institutional strengthening of these entities must take place. In the next phase the private investment should be allowed in generation and distribution of power. In the last phase, increased competition and private participation should ensure ultimate higher consumer satisfaction.

Generally speaking the reforms could be any one or all of the following

• Setting up of independent regulatory authority so as to give the sector more autonomy.

• Make SEBs more financially viable units.
• Rationalization of tariff structures and reduction of subsidies to agriculture to a financially acceptable level.
• Metering of all connections, timely and proper billing and its collection.
• Investment in quality transmission and distribution equipments, up gradation, frequent inspection, repair and maintenance of the equipments to improve the operational efficiency.
• Pruning the excess work force, training the existing staff to make them customer oriented.

Some reforms are already on its way, setting up of SERC and CERC is a step in this direction.  Now it is the responsibility of these commissions to imbibe competition in a fair way to improve the efficiency of all the operators. But looking at the initial performance, it can be said that these regulatory authorities have a long way to go to achieve the above said objectives.

The regulatory authorities need to be given more autonomy and delinking from political influence is required. The real regulator, which can ensure free and perfect competition, can then emerge.

The state of complacency in the political camp as well as in the SEB’s may prove the greatest hurdle on the path of faster reforms. A continuous and consorted effort from all the directions is called for if the reforms are to be successful.

G Bharathi
Faculty - Economics
Aurora's PG College, Hyderabad
pg@aurora.ac.inisan Jai-Hind