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States Must Boost Power Generation


With power sector woes posing a principal challenge for the smooth growth of the economy in general and manufacturing industry in particular, the focus is now shifting squarely on injecting reform measures by the states. No doubt, the Centre is doing its mite through its budgetary resources as also in funding its flagship power schemes such as the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY) and the Integrated Power Development Scheme.

DDUGJY with a total cost of Rs 43,033 crore was approved in December 2014 for separation of agriculture and non-agriculture feeders, enabling prudent rostering of supply to agricultural and non-agricultural consumers in the rural areas, beefing up and augmenting sub-transmission and distribution infrastructure in rural areas, including metering at distribution transformers/feeders/consumers. Earlier, the Central government launched the National Electricity Fund (Interest Subsidy Scheme) under the UPA government in 2012 to provide interest subsidy on loans raised by both public and private distribution companies for capital works sanctioned by financial institutions to improve the infrastructure in distribution sector during the financial year 2012-13 and 2013-14.This scheme made a modest start as distribution utilities had begun to improve  the operational efficiency by way of reducing aggregate technical and commercial (AT&C) loss and revenue gap to get the interest subsidy  under the NEF. Undoubtedly, the NEF scheme is serving as one of the instruments to improve the performance parameters of discoms.

Against this positive development in the power front, recently three States viz., Goa, Uttarakhand and Meghalaya took the initiative in joining hands with the Centre’s initiative by beginning the process of addressing their power sector policy aberrations. They have resolved to carry out rate increases and debt restructuring, besides launching schemes to enable round-the-clock power to consumers. These states were smothered by huge losses and mounting debt of power utilities, owing to no increase in power rates for years with the piled up financial losses of the Electricity Department of Goa estimated at Rs 624 crore, that of Uttarakhand’s power distribution wing at Rs 1,695 crore and that of Meghalaya Power Development Corporation’s losses at Rs 694 crore.

Credit rating agency CRISIL had prepared a report on state utilities and recommended measures to reform the system by proposing tariff increase of 1.7 per cent for Uttrakhand, 11 per cent for Goa and 15 per cent for Meghalaya from next financial year.  A joint communiqué issued on September 21 in the capital pointed to a five-point agenda for these states—an increase in power generation from local energy sources, an improvement in the inter-state transmission network, revival of the sick distribution sector, increased use of renewable energy and the use of energy-efficient measures. It is gratifying that a joint initiative document for these states would be released by the end of this year.

Unlike the recent past when a pro-active Centre took upon itself the intractable task of financial restructuring for distribution companies, the NDA government’s programme places no primacy on proffering grant from the Centre to goad reduction in debt and losses. On the other hand, it has left the task to be managed by the State themselves with their local knowhow and best practices. In an increasingly market-driven economy with more players in the distribution arena, the days of patronage from the Centre must end. At best the Centre can set off alliances of like-minded States to bring reform on their own, as in the case of the three States’ joint efforts under the watch of the Centre.

It needs to be noted that though power tariff is determined under Section 61 to 64 of the Electricity Act, 2003 by the appropriate State Electricity Regulatory Commission (SERC) in line with the provisions of the Act, there is no provision for direct regulation of the electricity tariff by the Union Government. But the generation of power is mostly vested with the State government-run electricity boards with no robust competitors in the arena and with most of the States not willing to unbundle other operations like transmission and distribution, the leeway for manipulation remains large with little proper checks and balances in the system. Naturally, rationalizing tariffs poses the toughest challenge with political masters unwilling to undertake any such unglamorous and potentially risky exercise for their own cushy existence. As there is a complete mismatch between the cost of buying power and the tariff charged from the consumers, the generation and distribution power companies owned by most of the State governments continue to bleed and make a permanent draft on the state exchequer owing to the power subsidy they so peremptorily purvey.

In a written response to a query in the in the Lok Sabha on March 12, 2015, the Minister of State for Power, Coal and New & Renewable Energy Piyush Goyal said  Section 131 of Electricity Act 2003, required the State governments to reorganize their State Electricity Boards (SEBs) to make the power sector efficient and financially viable. Minister said, as on date, 22 States in which matters pertaining to generation, transmission and distribution of electricity were managed by respective SEBs have corporatized their Boards.

It is interesting that out of the 29 States and 7 union territories in the country, only 22 states had corporatized their SEBs! How far these corporatized SEBs had unbundled generation, transmission and distribution business and run them independently on commercial and prudential lines to recover the cost of generation and delivery to the last-mile consumer can at best be a conjecture in the absence of authentic data to ascertain? This is particularly so when the state satraps continue to exercise a limpet-like grip on these state-owned entities for distribution of personal favours to constituencies that they deem indispensable to their electoral gains for poll after poll!

It is equally interesting that since the distribution of electricity at retail levels falls within the domain of State governments, the Central government does not carry out any audit of distribution companies (discoms)! But as discoms come under the Companies Act 1956, they have to get their accounts audited through statutory auditors with the State Electricity Regulatory Commissions ensuring independent audit of discoms.  So, much really depends upon how the SERC is constituted and how competently it runs its remit without being seen as a docile extension of the government of the day!   As a quasi-judicial body SERCs perform their due chore with impartiality.

and it is time the states left their SERC function that way in the overall interest of ensuring a semblance of cost-benefit balance!


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