Indian Railways is looking to drive down its power cost through purchase agreements with independent power producers. That is a smart move. Any commercially run organisation, irrespective of whether or not it has social obligations, should seek to cut out wasteful expenditure and seek lower cost suppliers in order to become competitive. The Railways, like every service funded by taxpayers’ money, needs to become more efficient, improve its operating margin and generate enough resources to replace ageing assets and invest in expansion. It is unfortunate that this effort on the part of the Railways is sought to be scuttled by State governments that are seeking to protect the earnings of the electricity utilities they run. As reported by this paper on Monday, the delay on the part of States such as Odisha, Bihar, Uttar Pradesh, Haryana, Punjab, Delhi, Rajasthan, Chhattisgarh and West Bengal to issue no-objection certificates to independent power producers to wheel electricity into the grid is preventing the Railways from procuring cheap power. The Railways procures power for traction at an average rate of ₹6.7 a unit. In comparison, power from independent producers is available at tariffs between ₹3.69 and ₹5.5 a unit. Indian Railways consumes 2,100 MW for traction and 400 MW for non-traction purposes and this demand is only set to increase as more tracks are electrified and train trips increase. That will also lead to ballooning of the Railways’ electricity bill, which is already ₹12,000 crore a year. The Railways estimates it can save up to ₹5,000 crore annually if all its plans to procure power from non-State utilities materialise.

If independent power producers are able to drive down tariffs to about half of that charged by State utilities, it reflects tellingly on the efficiency levels at which State generating companies operate. The State electricity utilities may not always be able to match the tariff levels offered by new producers for reasons such as technology and choice of feedstock. However, there is no denying that the costs and losses of State utilities can be brought down and earnings improved. Making procurement of feedstock and power generation more efficient is one part of the solution. Earnings will also improve by reducing what is euphemistically referred to as transmission and distribution losses — that is, theft and under-payment for power consumed. Unfortunately, State utilities have been slow to address this problem.

The Railways is not the only organisation seeking to buy cheaper power from non-State players. Many industries are doing so too. Rather than block free market in power trading, State governments need to push utilities to continuously reform. Transmission lines, like toll roads, should be available to anyone willing to pay the charges. State governments should not be allowed to hold consumers to ransom by denying or delaying access of private producers to transmission lines. Rather, competition should spur reforms within State utilities.

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