Reforms spur power sector

REALITY CHECK PART 6

The power sector was probably the biggest blotch in the infrastructure sector and threatened to almost derail the country's growth prospects when the National Democratic Alliance came to power in 1998.

While the framework for a turnaround is in place now, the government is still not in a position to showcase any perceptible improvement in the loss-ridden sector.

In the first couple of years, the ministry tried to woo independent power producers but met with little success. It was only in 2001, with Suresh Prabhu as the power minister, the government realised that the problem lay at the distribution end. Prabhu decided to tackle power distribution, which was critical to the sector turning viable, in March 2001.

Late last year, the power sector saw the biggest policy initiative in the form of the Electricity Act 2003.

The Act has opened up new business avenues for state-owned and private sector players. It has promised to reform the inefficient and high capital intensive sector and make it more attractive for private investment.

The other high point for the government was the operationalisation of the Montek Singh Ahluwalia Committee recommendations for the securitisation of past dues of states to central public sector utilities like the National Thermal Power Corporation (NTPC), Powergrid Corporation and National Hydroelectric Power Corporation (NHPC). This ensured that the better performing utilities remained insulated from the losses of State Electricity Boards (SEBs).

Along with past dues, the SEBs had to agree to pay their current bills in time, which resulted in the realisations of utilities like NTPC shooting up to 100 per cent in the last fiscal, compared with around 70 per cent two years back.

The focus on distribution started yielding fruits with several states biting the bullet and discontinuing populist measures like free power to farmers.

A dozen states, for the first time in decades, showed a Rs 8,000 crore cut in losses. Four states, including Haryana and Rajasthan, were eligible to avail of financial concessions from the Centre under the government's key reform tool "" the Accelerated Power Development and Reforms Programme (APDRP).

Within days of the passage of the Act, various private companies, including Reliance Energy, Essar Power and the Tatas, threw their hats in the ring to start trading in power.

Reliance Energy and Tata Power are vying for distribution zones in Maharashtra and Gujarat. After a lull in the power generation sector, the power ministry is trying hard to achieve the financial closure of projects totalling 8,000 Megawatt, which have been stuck at various stages for over five years.

The government, however, suffered reverses in its attempt to push through the Tariff Policy, with stakeholders, including regulators and the central public sector undertakings (CPSUs) opposing certain provisions in the draft. The Tariff Policy was intended to guide the Central Electricity Regulatory Commission (CERC) in the formulation of future tariff orders.

With the CERC announcing the new terms and conditions for setting tariffs, applicable from April 2004 to April 2009, the government's inability to usher in a Tariff Policy would only create more uncertainty in the minds of investors.

Slippages in the government's capacity addition targets has also been a cause of concern. During the Ninth Plan period, only 18,917 Mw (47 per cent) of the targeted 40,245 Mw finally materialised. The Centre has set a similar target of adding 41,110 Mw during the Tenth Plan period.

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Packing more power

SUCCESS AREAS:

• Passage of Electricity Act 2003
• Implementation of one-time settlement of SEB dues
• Centre's carrot and stick reforms policy largely responsible for states cutting losses by Rs 8,000 crore
• States like AP, Haryana and Rajasthan eligible for matching grants from the government
• States doing away with free power

PROBLEMS:

• Government's inability to build consensus on Tariff Policy leading to its repeated postponement
• Laggards like UP and Bihar yet to initiate significant reforms
• Repeated slippages in capacity addition targets
• Skewed hydel-thermal mix, too much of dependence on thermal generation