The Hindu : Accelerating power reforms

Online edition of India's National Newspaper
Monday, Apr 29, 2002

Opinion

Opinion - Editorials

Accelerating power reforms

THE INDIAN POWER sector's resistance to reforms has largely been the result of a seemingly simple combination of politics and economics. The Union Government — which has been the most vocal on the reforms — can do the least by way of implementation, Electricity Boards falling under the control of State Governments. The State Governments, for their part, have been reluctant to go ahead with the much-required correctives in the sector largely because of perceived adverse political reactions to hard economic decisions. What is lost in this continuing downward spiral of the power sector is that every delay in reforms does not solve the problem but adds on to a situation wherein the damage will be drastic. Equally important is the need to realise that there can be no single all-India solution to problems in the sector. Simply put, this forms the backdrop for the importance of the Accelerated Power Development Programme (APDP) started in 2000-01 to provide systematic financing for renewal, modernisation and life-extension of old generating stations and for upgrading transmission and distribution networks in the country to ensure financial improvement of the State Electricity Boards (SEBs).

Among the several efforts taken to reform and restructure the SEBs, the Centre's policy of entering into Memoranda of Understanding with the State Governments has been marked by more activity than implementation. The Union Power Ministry's recent reiteration that its funding to the States will be linked to performance is therefore a timely reminder. In addition, the Centre's emphasis on two segments of the power reforms — transmission and distribution losses and revenues — should be taken as a serious indication of all that is wrong in the working of the sector. Being the major public utility service provided by a State, power supply is invariably one that is extremely sensitive to popular reaction. However, the aging infrastructure and the transmission and distribution systems are in urgent need of modernisation, for which the States do not have the adequate resources. This silent drain on the system has taken it to a position of near-collapse, which the country can ill-afford. The Union Government's expectations of a revival of the finances of the SEBs revolve around a reformed power sector, overseen by regulatory commissions. The experience of the working of the latter has been far from encouraging.

Among the several commitments given by the States that have entered into agreements with the Centre are the constitution and operationalisation of the regulatory commissions, energy audit, reduction of technical and commercial losses and achievement of commercial viability in distribution. The magnitude of the difficulties the power sector has got itself into is reflected in the outstanding dues by the various SEBs to the central utilities and the Railways, which stand at over Rs. 40,000 crores. This is another area addressed by the Union Government through the offer of a one-time settlement. While this arrangement will directly benefit the central power utilities, the problem persists at the State level. The mess that the SEBs find themselves in is largely on account of their failure to correct transmission and distribution losses (more a result of un-metered distribution than technical shortcomings) and the political reluctance to correct the agricultural subsidies. The route taken by the Centre — directly linking the purse strings for power reforms to ground level implementation — is the only option it has to check the slide. The onus, however, remains on the State Governments that would have to approach the issue with a long-term perspective.

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