'Without distribution reforms, the power sector would collapse'

Q&A/ P M Sayeed

P M Sayeed

The power sector is widely seen as one where there is no clarity on policy and where regulatory structures are too weak to deliver the desired results.

Union Minister for Power P M Sayeed, after surviving a reshuffle last year, says he is on track to introduce the long pending policy changes.

He spoke to Business Standard

on what he is doing to assuage the Left Parties and on the reforms undertaken by the power ministry. Excerpts:

The Left has raised certain objections on the Electricity Act, 2003. What are those objections and what are you doing to accommodate their point of view?

The Left acts as a reminder to the United Progressive Alliance (UPA) government of the concerns of the poor.

They have expressed their reservations on issues like elimination of cross subsidies (on which discussions are still on), open access, rural electrification, unbundling of state electricity boards, and on certain aspects of captive generation like levying of surcharge.

We will try to address their concerns. My feeling is that most of their reservations will be taken care of by the electricity policy, tariff policy and the rural electrification policy.

I have already held two meetings with them and another one will be held around mid-February after the Assembly elections are over.

If there are any additional concerns, they too will be looked into. Acts are not valid till doomsday. They are not documents written in stone and can be amended if the need arises.

The National Common Minimum Programme stated that the NEA-2003 would be reviewed because some states had expressed concerns. Based on that, we have already given extensions ranging from two to 12 months to 13 states for unbundling their state electricity boards (SEBs).

If there are genuine problems, further extensions can be given to states for unbundling. There is nothing in the Electricity Act that says that further extensions are not allowed.

By when can one expect some movement on the various policies that are to be introduced?

The final draft of the electricity policy has been formulated and has been sent to the Cabinet for approval.

For the tariff policy and rural electrification policy, consultations with all stakeholders are complete. Once the electricity policy is cleared, the others will be forwarded to Cabinet.

Power plants are facing coal shortage. What steps are being taken to ensure adequate supply of coal to them?

The coal ministry has estimated that coal shortage in this year and the next would be 10 million tonnes a year. Twenty-six power stations have a critical coal supply position; that is, they have stocks of less than seven days. Of these, 15 have stocks of four days or less.

A decision to import coal has been taken in consultation with energy secretaries of various states and chairmen of SEBs. Plants based on the coast and those where the cost of imported coal will not be significantly higher than domestic coal, have been asked to look at imports.

By March 2005, we expect the imported coal to reach the plants and the situation will be under control.

For now, we need 10 million tonnes of coal a year, but if the need for larger imports arises in the future, we will revisit the matter and talk to all states. We are also in constant touch with the coal ministry over the supply position.

What is happening to the 50,000 MW hydro-electric initiative?

On the hydro-electric initiative, 162 preliminary feasibility reports have been prepared. Of these, 73 low-tariff schemes with tariffs of upto Rs 2.5 per kwh and with an installed capacity of 33,000 MW have been identified for the preparation of detailed project reports (DPRs).

The agencies to prepare these DPRs have been identified and the concerned state governments have been told to give their consent for this. "In Principle" approval of the Planning Commission has also been sought for funding the scheme.

Are high costs of compliance with environmental standards a concern?

On environmental compliance costs, a call has to be taken on whether the project is feasible with the costs or not. The ministry of environment and forests has issued guidelines for setting up new power plants.

The projects are considered for appraisal by an expert committee. After assessing the environment impact, the committee may recommend a project for clearance, rejection or relocation. There is no question of not complying with environmental standards.

Reasonable safeguards on environmental issues like compensatory afforestation, catchment area treatment and resettlement and rehabilitation of people are required.

Constant dialogue is on with the ministry of environment and forests on what should be included and what should be left out.

What is the position of states with respect to power reforms?

We have been neglecting our distribution sector and in order to improve that, we have to apply some method to improve our productivity and efficiency. That is what reforms are primarily about.

Our machines are age-old and there is no maintenance, which results in technical losses. There is a commercial loss, too, because of theft and no metering. Whatever metering there is, is low grade.

Billing is not even 50 per cent and collection is even lesser. The Accelerated Power Distribution Reforms Programme (APDRP) was, therefore, applied to this sector.

Even then, there are five or six states, which I will not name, which account for 80 per cent of the Indian power sectors problems.

But the effectiveness of the APDRP has been questioned and some are of the opinion to do away with its investment component.

Without the APDRP, the power sector would collapse. It is the first major reform programme we have in the sector.

If you do away with the investment component, how do you do the metering, replace old transformers and lay new lines? Also, technical losses will mount further.

If you tell a state to decrease losses and say that for a loss reduction of Rs 100 crore, you will give it an incentive of Rs 50 crore. You also have to tell them how to decrease losses, for which you need to invest.

Over a period of time, the investment component will go down and the incentive component will increase. But if you take away the investment component, states cannot improve, augment or modernise their distribution system.

However, there is always scope to improve the working of any scheme. The power ministry has engaged independent agencies to evaluate the working of the APDRP.

For instance, money going from the Central government to state governments and then to SEBs sometimes takes nearly seven to nine months. We need to revisit this approach to sending money to SEBs.

Will the government manage to meet its generation capacity addition target in the 10th Plan?

We are hopeful of exceeding the 41,110 MW target. In fact, generation has grown by 7.8 per cent in April-September 2004-05, compared to around 3 per cent growth in the corresponding periods in the past three years.

The plant load factor has gone up to 72.9 per cent in April-September this fiscal as against 69.2 per cent last fiscal.

In the 10th Plan we faced a problem of late benefits and bunching of projects towards the end of the plan. So we have started advance preparations for the 11th Plan to ensure regular capacity addition from the first year of the next plan.