The Electricity Act was passed in 2003 to fast-track power sector growth. Six years on, the experiment has fallen way behind the initial promise.
The Act had envisaged rescuing the financially-ill state electricity boards (SEBs) by mandating their unbundling into separate corporate entities to carry out generation, transmission, distribution and trading businesses. Since then, only six out of the 14 restructured electricity boards have been able to make profits.
While there are cases like Tamil Nadu which have maintained healthy balance sheets without corporatising their electricity boards, there are states where distribution losses have remained as high as 30-40 per cent even after unbundling.
The six profitable ones are West Bengal, Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Orissa, by the latest data available.
Of the remaining SEBs, six have registered losses in 2007-08. These include Assam (Rs 138 crore), Delhi (Rs 104 crore), Haryana (Rs 625 crore), Madhya Pradesh (Rs 1,827 crore), Uttar Pradesh (Rs 4,512 crore) and Uttarakhand (Rs 238 crore). Data for the other two are not available.
This has prompted the Planning Commission to say that unbundling of SEBs should not be viewed as a final solution and must be backed by enough political will to impose accountability on utilities. “Distribution reforms have not taken the expected pace. There have been major movements in certain areas, for example, the Bhiwandi model. But a strong political will is required to move the initiative further,” said a senior official from the commission.
Power distribution in the Bhiwandi circle in Maharashtra was privatised in 2007, following which power losses in the circle fell to less than 20 per cent from over 55 per cent under the earlier state-owned distribution model.
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The main reasons for indifferent performance are lack of investment in distribution infrastructure and untimely filing of returns. “Unbundling has to be followed by better accountability, measures for investments and regular filing of returns by utilities, and there has to be a political will to leave them free. All of that is not there,” the Planning Commission official said.
The employees of SEBs have been generally opposed to unbundling, as they fear it would lead to privatisation and subsequent job losses.
West Bengal, another success story in power reforms and which started making profit from electricity distribution in 2007-08, raised rates by 78 paise, to Rs 4.27 per unit of power last month. The electricity rates in the state have thus been hiked for the second time in the current year, citing increased fuel cost.
This, however, is an isolated case and states should focus on “regular revision of tariffs which is not happening currently in many states”, the official said.
Apart from unbundling, another measure under the Electricity Act to push distribution sector reforms was to introduce open access, allowing large consumers of power – typically consuming 1 Mw and above -- to choose their electricity supplier. The Act had assigned the deadline of January 27, 2009, for grant of open access to all such consumers.
While applications seeking open access for over 25,000 Mw have been given till date, actual implementation has been as low as 7,400 Mw, and that too largely for captive power, according to latest data from the Central Electricity Regulatory Commission.
One stumbling block for open access is the high cross-subsidy surcharge, the amount paid by a consumer switching his electricity supplier to his existing supplier, to offset the loss incurred by the exiting supplier on this account.
Here, too, the bigger problem is one of political will. “Reform has to happen in distribution whether the Act was there or not. But unless the states have political will, you cannot make any Act work,” the official said.
“It is true that more private investments have not come up so far in the distribution sector because there is reluctance on the part of the states to privatise. But this is a gradual process,” he added.