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World Bank loan for Haryana power sector may be scrapped

Balaji C. Mouli

Shaji Vikraman

NEW DELHI, July 2

THE World Bank loan to the Haryana power sector is likely to be scrapped with the Haryana Government showing hesitancy in going ahead with the privatisation of the distribution zones, a pre-requisite for availment of the second phase of the loan instrume nt, the Adaptable Program Lending (APL).

While the World Bank has made it mandatory for the State to privatise the distribution zones to avail itself of further assistance, the Chautala administration is willing to undertake any number of tariff hikes but not privatisation, according to officia ls.

The Chautala administration feels that its survival might be undermined if the tariff hikes are undertaken in the private domain, no matter how economically justified the decision may be. On the other hand, tariff hikes in the public domain are political ly acceptable. In the recent past, the State has undertaken two major tariff hikes and is gearing up for another one.

Interestingly, in Rajasthan, where World Bank is financing the reform process, the prescription is slightly different. Here, the distribution zones are being turned around before being offered for private sector participation. This is closer to the Asian Development Bank model for power sector reforms as adopted in Gujarat.

While consultants had made it clear to Haryana that sans privatisation, the power sector will not revive, their studies do not factor in the effect of Central intervention in the State sector. Under the $60-million APL I, the State has utilised $54 milli on.

Recently, the Haryana Government has signed a memorandum of understanding (MoU) with the Centre for financing reforms in the State. Under the MoU, funds would be directed towards improvement of sub-transmission and distribution system in the State with f unding milestones to ensure irreversibility of the gains so realised.

During the last few months, the Centre has been aggressively courting States and signing up MoUs, the last one being Andhra Pradesh, to fund reforms in the State power sector.

In a sense, there is competition and maturity evolving in the power reform prescription business.

With multilateral funding costs getting closer to market rates, the debate has risen to one of the optimal prescription. Further, in areas such as sub-transmission and distribution, in the absence of management transfer, private capital does not flow int o the sector. Centre's intervention has offered competition to multilateral funding in this regard.

In this backdrop, the Centre will be shortly organising a conference on reform prescriptions and the issues involved.

The World Bank funding for the Haryana power sector was a first of its kind in 1997 with milestone-based triggers for funding the sector.

According to the World Bank, the first phase of the reform process (APL I) sought to establish a new legal, regulatory and institutional framework, initiate the privatisation of the distribution business, and remove the most critical bottlenecks of the p ower system.

The project consisted of three project components. First, the emergency investment measures component involving construction of critically needed high voltage evacuation lines and transmission lines and sub-stations, rehabilitation of sub-transmission an d distribution systems.

The second component involved improvement of commercial and technical services to the consumers. This meant decentralised computerised billing systems at all sub-divisional offices, and improvement and upgradation of the complaint centers at all district and operation division headquarters.

Interestingly, the third part sought to provide technical assistance for reform programme management and communication, establishment and implementation of institutional development of the Regulatory Commission besides privatisation of one distribution c ompany.