The Hindu Business Line : Power conflict

THE RECENT RULING of the Appellate Tribunal for Electricity on an inter-State power transmission project, and the policy twists that led to the Tribunal's ruling underscore the fact that the country is yet to come to grips with the operational nuances of liberalising the electricity sector. At the core of the problem is the relatively lukewarm response from the private sector to projects thrown open for its participation. This often leads to a situation where there is just a solitary bidder for a particular project and the current policy framework appears inadequate to handle the challenge. The presence of a sole bidder must inevitably give rise to charges of inflated costs, and the regulator would stand accused of forsaking consumer interests. On the other hand, rejecting the proposal, while protecting it from such a charge for the present, would make it answerable, as it were, for failing to put in place much needed infrastructure, not to speak of rendering a related project unviable, as the latter would be deprived of downstream infrastructure to reach its own target customers. That too would be tantamount to forsaking consumer interests, albeit in the long run.

Above all, there is the policy conundrum of identifying the exact role for the public sector entity charged with the task of assisting the regulatory authority in arriving at the right project costs and tariff. In the instant case, the Power Grid Corporation is recognised as the `central transmission utility' that is supposed to assist the electricity regulator in evaluating technical and financial parameters of transmission projects proposed by the private sector. There appears to be a conflict of interest between its role as an evaluator of project costs proposed by private parties and its interest as a potential executor of the same project, should the private promoters fail to win the regulator's mandate. The lack of clarity could end up hurting the cause of private participation in infrastructure projects. After all, the private parties would be entirely justified in thinking that the former is using the concept of private participation as a tool to ascertain the floor cost at which it can successfully bid for transmission projects, should a few of its proposals be rejected on grounds of high project costs.

Indeed the modified law on electricity supply does recognise the potential for conflict of interest but has gone wrong in assuming that such conflict exists only when the Central utility engages in generation or trading of electricity. Either the regulator must have its own technical arm for such functions or, if it is going to depend on the services of the Power Grid Corporation, the latter should not be allowed to compete for the execution of any transmission project on which it is going to act as an expert witness. These issues need to be ironed out at the earliest if the concept of private participation is to have any chance of success.