Power play

IN CONVERSATION

The World Bank may not be the repository of all wisdom but it does have a bagful of experiences which could be useful for developing economies. At a time when a power-starved India is desperately trying to augment power supply through large 4,000-MW plants, SALMAN ZAHEER, who heads the bank's energy cell in India, and has worked on power reforms in many developing countries, tells Business Standard about his concerns on the proposed plants, at the sidelines of a media workshop in Hyderabad

India is rolling out seven large mega power plants through private investment. Do you think the exercise will be successful?

In the early 1990s, the power utilities were losing Rs 5,000 crore a year. A lot more electricity has come down the wire since then, and the losses are Rs 23,000 crore per year.

If cracking a Rs 5,000-crore problem was hard, cracking a Rs 23,000-crore problem is doubly challenging. Now, I think mega power plants can work, though it requires focused attention to see that the first two cases come to closure.

So you are suggesting a proof-of-mega-power-concept to begin with?

The regulatory framework is still being tested. Our sense is that the most critical aspect is to showcase two projects that come to closure to establish credibly.

Equity is not the issue here. It is the debt part of the project. The lenders are the ones who are risk-averse and want guarantees.

But these projects are without guarantees...

Even though there are no guarantees today, there are genuine concerns that need to be addressed like barriers to open access.

If the positions (of not giving guarantees) are etched in stone, these projects will be much harder to close. There should be give and take.

Which of these projects have less risk? Pit-head-based power projects, perhaps?

There is less risk associated with pit-head-based coal projects rather than those relying on imported coal.

What are the most important steps that you feel need to be taken to recharge India's power sector, besides adding to power generation capacity?

Distribution is a critical aspect of this business. We need to ensure competency and autonomy of the management of distribution companies. We also need to make regulatory processes much more participatory.

And what about tariffs: isn't that an area of concern?

We feel that many urban households are able, ready and willing to pay higher tariffs provided service is efficient and demand-responsive.

There is thus a need to refine subsidy structures. The power sector is a conduit for about Rs 20,000 crore of poorly targeted subsidies. On the positive side, industrial tariffs (which cross-subsidise household and rural consumers) have started declining.