New rules for power distribution licences

The government intends to put in place rules for granting second and subsequent power distribution licences.

The draft National Electricity Policy, circulated by the power ministry earlier this month, has proposed duty cuts for equipment and fuel by the Centre and states to attract higher investment.

The new rules will be notified shortly. It has also proposed a greater internal resource mobilisation by public sector companies to meet the estimated investment target of Rs 900,000 crore over the next ten years.

The paper has suggested that the second licence holder should get an area, which is at least the size of a revenue district to make the operations economically viable.

"Open access in distribution on a significant scale will be feasible, when the distribution network is at an adequate level of efficiency. The state regulatory commissions will need to ensure that upgradation and augmentation of the network is undertaken by the distribution licencees within a mandated timeframe," the draft paper said.

It also said cross-subsidies need to be further re-examined after five years in the light of their sustainability. Though the government has not sought a ban on subsidies, it is of the opinion that states need budgets for the subsidies, so that the health of the utilities does not suffer.

To meet demands, estimated at 975,222 million units and peak demand of 157,107 mega watt by 2012, the draft has proposed addition to the overall availability of installed capacity to 85 per cent and a spinning reserve of 5 per cent to ensure grid security and reliable supply.

For promotion of hyro-electricity, the power ministry has sought a long tenor debt financing. Imported coal-based thermal stations in coastal areas would be encouraged, based on the economic viability, it said. For gas-based units, new capacity will come up based on indigenous gas findings.

In case of transmission, the draft policy sought a tariff mechanism, which is sensitive to distance, direction and related to quantum of flow. The paper has also laid emphasis on rural electrification for which a new model has been discussed.