The Hindu Business Line : Power sector remains area of concern: Plan panel

IN spite of the importance given to the power sector in the 10th 5-year Plan (2002-07), the sector remains an area of "serious concern", hobbled by a host of adverse factors, according to the Planning Commission.

According to a latest assessment by the Plan panel, the country's power sector is saddled with several shortcomings.

Firstly, it is internationally uncompetitive and poor quality power imposes a heavy burden on trade and industry.

Second, systemwide aggregate technical and commercial (AT&C) losses exceed 40 per cent, with such losses in Orissa being over 45 per cent even six years after privatisation; in Delhi, the losses are over 40 per cent even three years after privatisation.

Thirdly, the State electricity boards (SEBs) are financially sick. The panel contends that 56 per cent of the households are not electrified, with power on demand remaining "a distant dream".

The burgeoning share of Central PSUs (CPSUs) relative to the State and private sectors is also a disturbing development, it said, adding that CPSUs receive guaranteed 14-16 per cent post tax returns under a cost-plus tariff regime.

"Such high guaranteed returns on a non-competitive basis are unique to India and more crucially cannot be sustained with the extant high level of AT&C losses."

Stating that distribution reforms remain key to improving the viability of the sector, the panel report said that generation and transmission investments continue to dominate the sector with a share surpassing 90 per cent of the investment.

"This is akin to building a superstructure without the foundation." Although power sector reforms have been under way for over a decade, with a few milestones reached in crucial areas, the sector remains locked in a situation that is "fundamentally unsustainable".

The efficiency of the distribution system as measured by the extent of AT&C losses remains low. Over 40 per cent of the energy pumped into the system is lost, not billed, or not collected.

While the losses have declined slightly, they remain much less than what was expected or is necessary to ensure the financial viability of the SEBs.

Commenting on its own Accelerated Power Development and Reform Programme (APDRP) fashioned by Mr N.K. Singh, former panel member, it said that the programme was aimed at bolstering distribution reforms in the States through investments and fillips for achieving desired outcomes.

Under the investment component, projects worth Rs 17,612.36 crore had been sanctioned by mid-March 2005.

But the total investment in APDRP projects over three years has been only Rs 5,768 crore.

Thus, despite recognising the criticality of the distribution sector to the efficiency of the power sector, actual investments in the distribution sector remain low.

Moreover, the actual investment is well below the total funding made available for APDRP projects.

Stating that the performance of APDRP has thus far fallen well short of the promise, it said that availability of baseline data and its reliability to measure results remain in doubt.

Hence, an independent review of APDRP was essential and the programme might have to be restructured to a completely outcome-driven one.

The distribution sector has been neglected in the past and based on the experience so far with APDRP, it is reckoned that an investment exceeding Rs 1,00,000 crore could easily be absorbed in the short to medium term to improve distribution efficiency.

"It would be best if at least 40 per cent of the Plan outlays are earmarked for distribution over the next 7-10 years."

Referring to the review of the Electricity Act 2003, the panel said that care should be taken to ensure that the revisions do not affect the provisions relevant for promoting competition and improving efficiency of the sector.

Such enabling provisions include unbundling, separation of content from carriage, phasing out of cross-subsidies, shifting to direct subsidies where possible, flexibility for captive generation, parallel distribution, and open access.

As competition is essential to realising efficiency gains in the sector, the proposed review, if any, should be driven by the need to realise such gains in this loss-making sector, the Commission said.

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