Simplify the complex power sector scenario in order to prioritise action.
There is now heightened expectation that the power sector will get as much, if not greater, attention than the roads sector. Most believe that it is a severely ill sector, lying in the ICU, with nobody quite clear on what to do. When a problem is highly complex, it is good management practice to break it down to a simple list of ‘A’ category tasks; and (for the time being) forget about everything else. My colleague, P Ramesh, who is a well-acknowledged expert in the energy domain, discussed with me an approach to cut through the complexity.
Consider the sector as 10 boxes:
Generation
Step up public expenditure on greenfields, divest brownfields
This is the classic model used in developing the Mumbai-Pune expressway. Getting the private sector into generation is important, but the government cannot wish away its predominant role in the current environment. State entities need to continue to add at least 80 per cent of planned capacity in the 11th Plan and 75 per cent in the 12th Plan. To spur action, there is need to set up geographically focused public entities a la NTPC to augment capacities in the public arena, not just in thermal but hydro also. Capitalisation of these entities could be done through divestment of existing public capacities — best to get premium prices for existing operational assets from the private sector instead of going through countless obstacles to get private capital into greenfield areas.
Transmission
Private sector to build new transmission lines on annuity
Identify the problem-corridors and weak spots on the national grid, and bid out transmission lines to private sector under the annuity model and remove the linkage to ‘projects underwriting transmission capacity’. A cess on generation could be levied which could be used to pay for the annuity streams. A cess of 2 paisa/kwh would fetch Rs 14,000 crores annually.
Box 3: Distribution
Franchise urban clusters, let discoms focus on rural linkages
Private franchisees — incentivised to bring down losses — should manage urban clusters. Examples include Mumbai and Delhi (and, historically Ahmedabad and Kolkata). Agra and Kanpur are also set to go this way.
Trading
Implement open access
In the earlier years, the business was anchored to PPAs only. It is now well accepted that the solution lies in merchant-power, where the risks of prices changing on spot basis are mitigated by the sheer enormity of the deficit. Merchant power capacity is expected to increase significantly. Open Access is crucial to this move. Even while the Electricity Act, 2003 mandates open access, states continue to prevent free flow of power. This should be redressed on a war footing.
Fuel
Clean up allocation norms
There is urgent need for a transparent energy policy that would ensures hassle-free availability of fuel for new capacities. In the coal segment particularly, there is need for a complete revamp of the process of allocation of coal linkage/captive mines as the present arrangement has made it purely a rent-seeking operation and money-making machine by onward sale of licenses rather than establishment of power plants.
Equipment
Encourage capacity beyond Bhel
The days of such state-owned monopolies are over. Huge delays are happening on account of poor project implementation as well as dependence on a single entity, Bhel. We need to ensure other players with serious intent are encouraged and supported. One key initiative in this regard would be that no state/central capacity is allowed to be contracted on MoU basis. It should also be ensured that weightage is given to early project completion and not just price for the basis for selection. This is a necessary step towards building capacity in the country.
Land
The state must acquire land ex-ante at viable sites
The draft Bill on Land Acquisition awaiting Parliament’s clearance clearly espouses the cause of the state acquiring land for infrastructure purposes. The power department of every state government must identify sites for new power plants that satisfy environmental, water and other logistical linkages. Under a special land acquisition unit (much like the 150 specialised cells NHAI is creating) the states must acquire land ex-ante and make them available for public or private sector use.
Funding
Investment needs of the sector have to be self-financed
The funding requirements of the sector have to be geared to be self-financing instead of depending on huge dollops of capital outlays under state/central budgets. As outlined earlier, generation should be funded primarily through the creation of a revolving capacity fund generated out of disinvestment of operating assets. Transmission should be funded through a cess on generation that could be used to service PPP annuity payments. In distribution, with the government already pumping in significant finances through R-APDRP and RGGVY, the only ingredient additionally required is the managerial efficiency of investments. This should be done in urban areas through the franchisee model, where franchisees could also bring in any additional capex requirements.
Regulatory
Reform regulatory commissions
There must be demonstrable political will to reform this critical sector-governance issue. Most regulatory commissions have lost credibility. This has to change and strong action should be taken to ensure that experienced and practising professionals are inducted into these august bodies. An overarching new legislation is required to provide autonomy, independence and accountability. A white paper on the subject has already been proposed by the Planning Commission.
Administrative
Political will and bureaucratic energy
This last box is actually the crucial starting point. The country needs a dynamic and integrated approach amongst all related energy segments. A new crusading integrated Energy Ministry supported by a live-wire bureaucracy which is passionate about the sector is the need of the hour. This new Energy Ministry should comprise of the existing power ministry with coal and gas added on. India is waiting.
[Vinayak Chatterjee is the Chairman of Feedback Ventures. He is also the Chairman of CII’s National Council on Infrastructure. Views expressed are personal.]
