Power sector owes

| Updated on March 12, 2018 Published on July 18, 2012

Time for piecemeal solutions is over. States must now be goaded into concrete action.

The power sector's woes never seem to end. So are the meetings to find solutions — the outcomes often being disproportionate to the time spent. The latest one, involving State power ministers in New Delhi on Tuesday, discussed the worrying health of distribution utilities. The power distribution companies or discoms have collectively run up debts of around Rs 2 lakh crore that they are unable to repay. One proposal discussed was to allow State Governments to issue long-term bonds for half this amount, with the remaining 50 per cent being restructured through a three-year moratorium on principal repayments. But all this would have no meaning if the discoms cannot recover the cost of electricity they sell to the consumers. These are going up because the generating companies, from whom they buy power, are faced with rising fuel costs. The only solution here — which everyone knows, including the political leadership that is unwilling to act, though, for short-term electoral reasons — is to raise tariffs for end-consumers and reduce, if not eliminate, freebies.

The generating companies, in turn, are having to increasingly rely on costlier imported coal, to make up for shortages in domestic availability. The sheer quantum of imports being resorted to, for blending with coal sourced domestically, has also led to the proposal now for a price-pooling mechanism. This, too, was discussed at the meeting and the States have apparently expressed willingness to consider a pooled price for coal. What the Government could probably, to start with, do is nominate Coal India, the country's monopoly miner, to import the coal, blend it with what it produces, grade the resulting material based on calorific value and price it accordingly. There is a similar case for pooling of gas prices as well, in view of stagnating domestic production and rising share of imports. Just as in coal, it is leading to an anomalous situation, where a few entrenched power or fertiliser plants are able to access cheap domestic gas at the expense of those having to meet their entire requirement from costlier imported liquefied natural gas.

But restructuring the debts of utilities or making available fuel at a pooled cost to generating companies cannot work in isolation. The more important pieces of the jigsaw require moving to a fully-market determined price of electricity that enables the discoms to recover their costs from consumers. This has to be combined with a system of open access — wherein a consumer can buy electricity from any source just as much as a generator can sell to any buyer — and investments in transmission infrastructure to create a genuine national grid that makes seamless evacuation of power from surplus to deficit regions possible. The time for piece-meal solutions and doing things in fits and starts is over. The States need to be goaded into acting this time, for their own good.

Published on July 18, 2012
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