The government will soon unveil a fresh package of incentives for private sector participation in power distribution as part of its strategy to shift the investment focus from power generation to distribution.
The package will include raising the current ceiling on return on equity fixed at the bank rate (9 per cent) plus 5 per cent and additional incentives for operational efficiency. The latter would include sops similar to those extended for power generation.
Officials said the package would be finalised only after the Coehlo Committee submits its report. The committee was constituted to suggest models to boost private sector investment.
The package is expected to provide incentives in the operations phase of distribution (on the same lines as in generation where the operator gets up to 0.7 per cent return for generating beyond the normative levels), and lift the cap on profits.
The Electricity (Supply) Act limits the profits a licensee can earn to five per cent over the RBI rate. Under the Act, the private sector can enter distribution with the option of entering generation.
Ministry officials indicated that the reforms in the power sector, introduced in 1991, started at the wrong end as the real problem lay in tackling distribution.
The Coehlo Committees terms of reference include suggesting modifications in the present Electricity Acts (1910 and 1948).
The committee is also supposed to consider changes in the sixth schedule of the Electricity (Supply) Act, 1948, which lays down the financial principles in the power sector.
The governments policy is aimed at improving cash flows into power generation. It feels that the returns that can be earned can be ploughed into generation as equity. Also, competition in distribution would allow improved quality of supply.
Officials, however, cautioned that problems involved in tackling reforms at the distribution end to attract private sector were more complicated compared with problems at the generation end.
