Prioritise power distribution

Paper focuses on power reforms as financial losses rise in the sector

The reform of the power sector is crucial, as financial losses amount to 1.5 per cent of the gross domestic product (GDP). Power distribution should be the first priority for improving the commercial performance and financial viability of the power sector, says the World Bank Country Strategy paper for India.

The paper, covering the period from 2005 to 2008, says that, even if the current level of losses were reduced dramatically, large investments in additional generating capacity would still be essential if power availability is not to constrain India's capacity for rapid growth.

The bank would consider providing investment support in transmission through PowerGrid and in generation, for hydroelectric projects, it added.

"The power sector continues to be one of the greatest constraints to maintaining growth and further reducing poverty in India. Much of the population remains unconnected to the public power system, and those who are connected, often receive infrequent and unreliable service, making power supply a brake on private sector development and economic growth," the report said.

While a number of states have worked to improve the commercial performance of their state utilities, progress has been difficult and slower than many originally hoped.

At the national level, the passage of the Electricity Act, 2003, and securitisation of past dues of central power utilities, have provided a basis for the bank to support transmission, distribution and generation in India.

The bank could support investments in PowerGrid to strenghten the national transmission network and raise the inter-regional power transfer capacity.

Investments would be aimed at facilitating more economic use of generation resources, providing greater grid stability, establishing open access regime and facilitating the development of a power trading market within the country and with India's neighbours. The IFC could mobilise private financing for transmission, building on the successful model of the Tata transmission line.

For generation, the report said that there was potential for private sector development and financing in thermal power generation during the CAS period. The bank would also offer investments in hydroelectric generation capacity that could be developed with limited social and environmental impacts. For many years, the hydropower business in India has a poor reputation.

However, with major actors starting to improve the environmental and social safeguards practices, the bank will work with the government and its public sector units to seek possible new avenues for support on a modest scale for hydropower development over 2005 to 2008.

On rural electrification, the paper said that UP, Bihar, West Bengal, Orissa and AP were the states in greatest need of support.

The bank was working with the government on an initial engagement in rural electricity access focused on provision of advisory services.

There may be potential for the bank to scale up assistance based on the experiences of this operation during the latter part of the CAS period.

---

Paper tiger

• Power distribution should be the first priority for improving the commercial performance and financial viability of the power sector
• Even if the current level of losses were reduced dramatically, large investments in additional generating capacity would still be essential if power availability is not to constrain India's capacity for rapid growth.
• The bank would consider providing investment support in transmission through PowerGrid and in generation, for hydroelectric projects, it added