The Hindu Business Line : Powering reforms

FOR THE COUNTRY's power sector managers there is at last something to be happy about: The combined loss of State electricity boards is down by Rs 8,000 crore in 2003-04. The Power Ministry believes, quite rightfully, that this is mainly because of the Accelerated Power Development and Reform Programme (APDRP) it has implemented. Independent ranking of State electricity boards by two rating agencies, as also the Task Force on Power Sector Investments and Reforms, have found Andhra Pradesh, Karnataka and Haryana to be the top three States — in that order — to reform themselves and to also make themselves commercially viable. Still, even these States have a long way to go to clean up the sector fully. However, the progress made by these States should spur others to go ahead with reforms in the power sector to make it attractive once again for private investment.

The independent ranking — where Andhra Pradesh leads with a consolidated score of 71.5 followed by Karnataka with 68 and Haryana with 64 — clearly shows that the key to the improved health of the power sector is reforms. The Power Ministry has been making all the right moves with greater focus on setting right transmission and distribution, and putting in place a tariff policy regime. These should make generation once again attractive for the private sector, which can now bypass the bankrupt State electricity boards and sell power directly to third parties, thanks to the Electricity Act 2003. As the task force headed by Mr N. K. Singh, Planning Commission member, has pointed out, a number of States have started the process of unbundling their electricity boards. This is important from the point of view of increasing accountability in operations and would eventually help States bring in competition in both bulk and retail sales. But the task force also notes with concern the deteriorating financial health of the electricity boards. Issues that need to be tackled to set this right include dealing with the high degree of cross-subsidisation; the lack of will to implement tariff orders passed by the regulatory commissions; inadequate and faulty metering; the investment skew towards generation; monolithic and unwieldy State electricity boards; and the increasing gap between revenue receivables and expenditure.

Over the last two-three years, the Power Ministry has been working with State governments and industry players to improve the health of the power sector. These measures — laws, policy initiatives, and a carrot-and-stick approach through the APDRP — have certainly got more States interested in reforms. The momentum has to be sustained. The Ministry has to continue prodding the States reluctant to take up reforms as also the laggards such as Bihar and Arunachal Pradesh that are at the bottom of the ranking table, to try and emulate the successes in the reforming States. That is quite a task, but therein lies the success of the reform programme itself. In this the APDRP will be useful. It has made States compete with one another to access more funds to improve their distribution networks while the incentives the scheme offers are good enough for the State electricity boards to want to reduce their financial losses.