The Hindu : Energising the power sector

Online edition of India's National Newspaper
Wednesday, Apr 23, 2003

Opinion

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Energising the power sector

GIVEN THE MAGNITUDE of obstacles that obstruct meaningful reform in the power sector, any steps to correct the distortions are bound to be viewed cynically. Power sector reform in this country has not suffered for want of a theoretical framework. The difficulty has been at the implementation stage, where the States rather than the Centre have had to bear the brunt of the reforms, at least in the initial years. The legacy of this critical infrastructure hardly gives room for optimism. Yet, a few recent policy initiatives are noteworthy in that they have the potential to lift the power sector from the quagmire into which it has sunk. Earlier this month, the Lok Sabha passed the Electricity Bill 2001. Despite the delay — its provisions were widely discussed, including by a Standing Committee — the final enactment of the new legislation will be one of the defining moments in the power sector. The preamble to the bill says it all: it will consolidate the laws relating to generation, transmission, distribution, trading and use of electricity; take all measures that are conducive for the development of the sector, including rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, address environment concerns and empower the existing power sector regulators and create new ones. In consultation with the States and the regulator, the Centre can formulate and execute a new nationwide policy based on optimal utilisation of resources. Adequate steps will be taken to encourage conservation and the use of non-conventional energy sources. Theft of power and transmission and distribution losses are to be countered more meaningfully, the former by compelling the State Governments to frame tough anti-theft legislation of their own and the latter through a scheme of incentives under the accelerated power development programme. The new legislation can usher in important paradigm shifts in the power sector. Competition will be possible not just in generation but also in every facet of the sector including in distribution. Moreover, private sector investment will be facilitated by the greater transparency that will come about.

Despite its justifiable and welcome sweep, the new legislation, it is feared, may not go far enough in addressing the pressing and multi-faceted concerns of all the stakeholders. For instance, it does not compel States to introduce time-bound reform of their electricity boards. Nor is it clear as to how far the competitive forces that are to be unleashed will be wide-ranging enough to promote commercial efficiency and ultimately benefit consumers. However, scepticism of any kind is rooted more in the legacy of the power sector. The Electricity Bill 2001 might be the single most important development and the focal point of all policy initiatives, but other recent initiatives are also important. Specifically in the third week of March, the Centre and 24 States pushed through a massive programme of securitising the outstanding dues of the State Electricity Boards (SEBs) aggregating to about Rs. 374 billion. This move has far reaching consequences: almost immediately it improves the finances of the SEBs while central public sector units which have supplied the power can dramatically step up their investment avenues and create new capacities. However, though providing a breather, such a financial reengineering will be successful only if backed by other moves to promote efficiencies. The subsidy regime, including the supply of free power, has been a serious bottleneck to the reform agenda. Fortunately, there is a growing realisation that vast segments of consumers, across all categories, are willing to pay for what it costs to supply but will not pay for the loss on account of theft and inefficiencies. In its widest sense, public policy has been moving towards alleviating the concerns of consumers. The new legislation is a significant step forward. Yet, the past legacy will take some time to be countered. The periodic flare-ups in the ill-fated Dabhol saga show how complicated the implementation of a policy can become. Legal controversies have so far stalled the restarting of even the first phase of the project. It is highly unlikely that the mothballed project can be made viable at all.

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