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IT MAY ONLY be a preliminary discussion paper on the power tariff policy, but it has raised the hackles of a number of States. Their grouse is that they were not consulted by the Union Power Ministry when it prepared the draft with assistance from CRISIL, and that a number of provisions in the draft impinge on the freedom of the State regulatory commissions. The States do have a point in that they were not involved in preparing the document, but they must know that it is only a draft and that they can still wield their clout or use their collective bargaining power to ensure that their genuine misgivings are addressed. The Centre would also do well to look into the States' objections, especially with regard to the provisions which the States feel encroach on the jurisdiction of the regulatory commissions and take necessary corrective steps. For a consensus with and among the States is crucial for the successful implementation of the tariff policy.

After the much-discussed Electricity Bill became law, the Power Ministry had stated that it would work on a national electricity policy as well as a tariff policy. The draft tariff policy released now is a step in that direction. The Power Ministry has also appointed a task force, whose terms of reference include recommending a tariff policy and a national electricity policy. The discussion paper on tariffs has come at a time when private investments in the power sector have tapered off and foreign investors are not too keen to look at it. Tariff rationalisation is taking place, and the process of setting tariffs requires detailed analysis of the operating and financial parameters. The proposed tariff policy, in the words of the Power Ministry, seeks to strike a balance between the interests of consumers and those of the investors.

The discussion paper has a few proposals that seek to remove some of the irritants between independent power producers and the State electricity boards, or their successor entities. Important is the proposal to ensure a pre-tax return on equity of 16 per cent. Earlier, the return was post-tax and a number of IPPs and State electricity boards did not agree on issues such as whether the Minimum Alternative Tax was an element of income-tax or not. The discussion paper seeks to remove this area of contention and leaves it to the IPPs to do their tax planning. The paper also seeks to review various operating parameters, such as heat rate and auxiliary consumption, which have often become points of dispute between the utilities and the private power producers. If the Centre's objective of increasing generating capacity and its goal of providing "power for all" by 2012 is to be achieved, the sector has to be made attractive for investment once again. The tariff policy is a step in that direction. The Union Power Secretary, with his experience in heading a private sector power utility, would do well to take the SEBs along to ensure that the tariff policy gets cleared at the earliest.

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