Govts should offset losses of discoms

Hyderabad: Electricity is vital for industrialisation, and India’s case is no different. Even today, according to reports, over 300 million Indians live without electricity and the per capita electricity consumption is at 780 kwh, which is among the lowest in the world. Although successive governments have tried to address the power issue, they could not achieve the expected results.

In 1991, the PV Narasimha Rao government initiated economic reforms in a big way, and it acquired a meaningful pace only during the AB Vajpayee tenure, when his government initiated power and telecom reforms, as part of economic reforms. Though telecom reforms have paid in the due course, we are still working on power reforms.

The reform process in the power sector began in 1996 in the state of Orissa by unbundling the electricity board. Three years later, the reforms spread to Andhra Pradesh (united) during the Chandrababu Naidu rule. His government created the state electricity regulatory commission, restructured the electricity board, opened up generation activity to private sector etc. The AP State Electricity Board was unbundled in 2000 under three heads – generation, transmission and distribution. Four distribution companies were formed, giving them the responsibility of power distribution.

In both the public and the private sectors in India, the electricity generation capacity rose from a merely 70,000 MW to about 2 lakh MW today; the transmission network has also been almost stabilised with the recent connection of the southern grid to other grids in the country, paving way for a common grid in the country. Even transmission losses have been reduced to accepted levels.

But the hitch is only with the distribution network – as a World Bank report puts it – which is considered as the last leg of reform process. The report says excessive intervention of government and politics inflicting the sector.

According to the World Bank review paper on power reforms, distribution companies in Andhra Pradesh (united) have been making losses since 2012-13. The World Bank is more concerned about Andhra Pradesh because, the state is an early reformer and an active partner in the process.

The Bank’s Lead Economist and Adviser, Sheoli Pargal, says, “the state had implemented various initiatives like improved metering, energy audits, dedicated industrial feeders, increase in tariff on a regular basis and less of technical and commercial losses, but distribution companies are still making losses.”

But why? She reasons that, “The distribution companies must be allowed to run as commercial establishments and governmental intervention should be reduced.”

Besides making the distribution companies commercially viable, the World Bank adviser felt, an amendment to the electricity legislation is required, preventing the government from indulging in any way in the activity of regulation. “We are not against subsidy but we want the government should make the payment, as they promise, to the distribution companies,” she said.

Recounting the power reforms in the state, the report said, generation capacity tripled from 1991 to 2012, with the additional capacities from private sector. While the financial health of the sector is still down at about 3 per cent the GDP in 2013,

it is clearly understood that the financial health of the sector is held hostage to subsidies, which the World Bank says could continue but must be funded by the governments.

The report shows that while the subsidy component booked by the units is about 17 per cent per year, the amount paid against subsidy is 12 per cent per year. This gap of about 5 per cent is crippling the sector, says the study.

Meanwhile, the power tariff issue is back in limelight in both the States of Andhra Pradesh and Telangana, where the distribution companies have submitted their tariff proposals to the respective regulators. It is assumed by the proposals that the power tariff is destined to increase, but we are yet to see the consumer getting quality power for 24/7 supply. Surprisingly, there is not much of discussion or agitation among the people about the power tariff hike. There are no major agitations, in both the states, save for the hue and cry by the Communist parties.

By: KVVV Charya