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Adi J. Engineer

IT IS now well known that the reforms in the power sector, which began in 1991, were started at the wrong end of the value chain. Opening generation to the private sector was considered simpler and easier to handle. Competition in generation appeared to have worked well and easier, as in the UK and elsewhere. This may have been the backdrop to priority being accorded to opening generation in the first phase of reforms in India.

The terms and conditions for this opening were reasonably remunerative and resulted in attracting international promoters to the extent of 95000 MW by the mid-1990s. However, things went sour once the reality of doing business with a sick power sector had its impact. To make matters worse, even the Government has been a frequent defaulter in honouring the PPA (power purchase agreement) terms thereby further eroding investor confidence. This eventually led to a mass exodus, and of the original 95000 MW, the actual capacity addition was a miniscule 6500 MW with another 3500 MW under execution. As on today, many promoters, including such names as AES, Cogentrix and Coastal Energy, have exited the country.

Capacity additions in the Eighth and Ninth Plans were just 54 per cent and 47 per cent of plan respectively; 80,000 villages are yet to be electrified. Fifty-seven per cent of households (69 per cent rural and 24 per cent urban) are yet to be served. Energy and capacity shortages persist and load shedding is endemic. The 1990s were thus a decade of missed opportunities.

The principal reason for failure of the generation-led approach was the "single buyer" model where that single buyer a largely bankrupt State Electricity Board (SEB). And the SEB was bankrupt because of high losses and politically skewed tariffs leaving a huge gap of almost one rupee between the cost of power supplied and the revenue realised from its consumers.

However, not everything went wrong. There was sporadic improvement. The national PLF (plant load factor) rose from 53.8 per cent to 67.3 per cent and is nearing 70 per cent. There was rapid increase in captive generation. Reforms commenced — notably in Orissa. The ERC Act was passed in 1998 and independent tariff determination commenced. However, it would not be out of place to say that possibly the greatest outcome of this decade was the learning and the realisation that dawned among the States and the Centre that the sector was out of control. The new national power strategy now recognises that reform needs to commence at the distribution end of the value chain where revenues enter the sector.

The new Act, the next steps

Possibly, the most significant event in the power sector since 1948 has been the enactment of the Electricity Act, 2003. The Act has among other things removed a number of barriers to the generation and flow of power in a competitive market scenario via de-licensed generation, open access and trading. It has also enabled a model for reform and restructuring of the state-owned power sector.

Having said this, it need to be emphasised that the Act, as notified, is largely an enabling legislation, and for its good intents to fructify a number of rules, regulations and procedures need to be put in place by the State and Central governments, the CEA (Central Electricity Authority) and the State and Central Commissions. Implementation, however, is not our greatest strength (going by our record achievement in the last two Plan periods) and there is need to do something about this.

There are also the issues of infrastructure capability to support some of the new concepts such as trading. These relate primarily to metering systems and transmission capacity where line constraints can inhibit the take-off of trading activity. Inter-State and other transmission linkages need to be suitably strengthened to avoid power transfer limitations and cascade tripping.

Delicensing of generation is a welcome measure for assisting the pace of capacity addition. However, much more than mere delicensing is required to attract significant investments into generation. One major requirement, as mentioned earlier, is security of payment from the purchasers of power. Hence, steps to bring about distribution reform need to be tackled on priority. Another enabler for timely enhancement of generating capacity is the simplification of cumbersome clearances and procedures. The recent and welcome move by the Power Ministry to re-engineer processes for speedy execution of projects will help to reinforce the benefits arising out of delicensing. As mentioned earlier, the bulk of the sector comprises state electricity boards. Hence, for any significant impact of reform the SEBs will need to be restructured. This calls for unbundling, corporatisation of the unbundled entities and early privatisation in that sequence. One of the more important features of the Act is that it confers enormous powers on the regulatory commissions. Likewise the responsibilities cast on the commission are also quite onerous. Much would therefore depend on how the commissions are manned and funded in order to effectively carry out the tasks assigned to them.

The delay in setting up the Appellate Tribunal is unfortunate. This forum will be playing a key role in resolution of disputes. Traditionally slow and uncertain processes of dispute resolution in the country have been a major stumbling block to economic progress. However, the Appellate Tribunal is a new approach and it is hoped that an equally new approach will be employed in manning this tribunal with proven professionals and experts in the working of the power sector and other relevant fields of knowledge.

Another area of importance is to develop the right mix of hydro, thermal and nuclear power for optimising cost and power security. The hydro mix is down to 25 per cent of the total as against a high of 46 per cent at the end of Third Plan resulting in reduced peaking capability. The utilisation of India's hydro potential of 150000 MW is just 17 per cent as against 58 per cent for Norway. Renewed efforts are called for to give a greater thrust to exploitation of hydropower.

With the passage of the new Act, great expectations have been unleashed in the country. If "Power for all" is not to remain an empty slogan, much work requires to be done. Hard decisions need to be taken and good governance exercised. Successful power reform even has its political rewards. It is believed that privatisation of power among other governances-related factors has recently paid rich electoral dividends in Delhi where an incumbent government has been able to convincingly overcome the anti-incumbency trend.

(The author is chairman of North Delhi Power Company Ltd, and Director, Tata Power, Tata BP Solar and has been a member of several expert committees in the power sector. The views are personal.)

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