The Hindu Business Line : Faltering pace of power sector reform

Even as the Electricity Act, 2003, mandates unbundling of State electricity boards, the fact that some of the allies of the ruling UPA are not for their part-privatisation and divesture renders the Act toothless.

THE country's reform brigade headed by the Prime Minister, Dr Manmohan Singh, with the Planning Commission Deputy Chairman, Dr Montek Singh Ahluwalia, and the Union Finance Minister, Mr P. Chidambaram, seldom misses an opportunity to highlight the importance of a performing power sector to sustain a high economic growth rate. But the pace of power sector reform has begun to falter following the passage of the Electricity Act, 2003.

Even though the late Minister of State for Power, P. M. Sayeed, did not carry out any exceptional reforms during his tenure, the appointment of Maharashtra Congress leader, Mr Sushil Kumar Shinde, as the new Power Minister does not signal a serious intention towards reformist measures.

Ever since the then Power Minister, Mr Suresh Prabhu, was replaced by Shiv Sena leader, Mr Anant Geete, in the NDA Government, in 2002, power sector reform has been moving at snail's pace, much to the dismay of investors..

Then Members of the Plan panel, Mr N. K. Singh and Dr Ahluwalia, too chipped in by recasting the Accelerated Power Development Programme as APDRP and also writing off massive arrears of the sick State electricity boards (SEBs) to start afresh. It is unfortunate that under the APDRP, the States which were asked to commit a time-bound plan of reforms (with a view to taking administrative and commercial steps besides technical interventions to help them in efficiency improvement in the sector) as set out in the Memorandum of Understanding and Memorandum of Agreement failed to implement their remit with further assistance closed to them, despite the intense monitoring by the Power Ministry.

The House Panel on Energy, in April 2005, lamented that against an expected Plan outlay of Rs 20,000 crore and sanctioned projects of Rs 17,612.36 crore under the APDRP, the release of funds till the middle of last year was hardly Rs 4,200 crore, though the Programme was to assist States in investment in distribution network for reducing technical losses and improving the quality of supply and reduce cash losses through grants. The failure of the APDRP clearly demonstrates that it is the implementing SEBs, which torpedo reform measures by inept handling.

SEBs remain managed by the State governments which are reluctant to bite the bullet; they prefer not to ruffle any feathers lest any cost plus pricing of energy triggers large-scale protests from constituencies benefiting from free supply of electricity. The Integrated Energy Policy (IEP) Expert Committee, headed by the Planning Commission member, Mr Kirit S. Parikh, rightly suggests that power sector reforms must focus on control over Aggregate Transmission and Commercial (AT&C) losses of the State power utilities. Only financially robust State power utilities can sustain the burgeoning Central and State public sector units (PSUs) and provide the much-needed comfort on payment security to attract private investment in the power sector at globally competitive terms, the Committee pertinently reasoned.

In order to control AT&C losses the Committee favours that the extant APDRP be restructured to ensure energy flow auditing at the distribution transformer level through automated meter reading, geographical information system (GIS) for mapping of the network and consumers, and separation of feeders for agricultural pumps.

Investment in developing the MIS is a prerequisite to reform and reduction in AT&C losses. This will fix accountability and provide a baseline, which is a pre-condition for privatisation. But the moot question is which State government will commit hara kiri by dropping the power dole. Even as private participation was allowed in power generation as early as the 1990s, the independent power producers (IPPs) had to sell to a single buyer — the SEBs, most of which were bankrupt owing to large-scale theft. As this tack was not yielding results, the government changed course by attempting to transfer transmission and distribution to the private sector. But the process of unbundling SEBs into separate generation, transmission and distribution entities proved difficult, with recalcitrant States refusing to give up the power to generate, transmit and distribute.

Even as the Electricity Act, 2003, mandates unbundling of SEBs so as not to burden them with multiple tasks, the fact that some of the allies of the ruling UPA are not for part-privatisation and divesture of the SEBs, renders the Act toothless.

Be that as it may, the fact that even where regulatory agencies were set up, as in Delhi, the distribution was handed over to private companies, and the general complaint was that it was awarded two different companies in two different areas without any actual competition. State monopolies have been converted into private monopolies, which, like inflated bills and frequent power shutdowns, bring a bad name to privatisation.

Even as the government was toying with the idea of gas-based power stations in the private sector and came forward to offer them incentives, the substitution of fuel from coal to gas seems to have hit a roadblock as suddenly the gas prices have flared up so much so that the Government is now planning mega power projects with coal as feedstock. Many energy experts are now of the view that the time has come to take a holistic view on energy issues instead of tampering with each source of energy in a haphazard fashion with no visible gains accruing to the economy which has come to rely more on imported crude .

In sum, if the country is to ensure its energy security in a volatile energy price regime, the authorities must put in place a pragmatic plan of action for exploiting the potential of other important sources of energy generation, such as coal, nuclear and wind power. The policy support on these sources should encourage more private participation and prudent pricing and trading strategies for attracting high volume of investments so that energy as a driver of the economy gets its rightful slot in the scheme of things.