Tata faults power reforms

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New Delhi, Jun 30: Criticising the government for slow implementation of distribution reforms in the power sector, the Investment Commission headed by Ratan Tata has asked the government to re-work its distribution reform strategy by negotiating a tailor-made distribution reform incentive package with each state. The commission has also suggested adopting a “carrot and stick” approach with incentives for distribution reforms and stiff penalties for non-compliance.

In its report to finance minister P Chidambaram, the commission has projected a capacity shortfall of about 43,000 mw and 72,000 mw by 2012 and 2017, respectively. It has cited government’s obsession to develop only large-scale power projects (like the latest round of ultra mega power projects) as against short gestation projects as a main reason for persistent capacity shortfalls in the country.

Stung by the criticism, finance ministry has asked the ministry of power to submit a plan of action to be discussed at a high level meeting under the chairmanship of Prime Minister Manmohan Singh. “The report is likely to be discussed by the commission with the Prime Minister on July 5,” the finance ministry told the power ministry.

The commission has noted that that only five states have corporatised distribution so far and in most other states the distribution reform process has been stalled. Associated Transmission and Commercial losses are still high at 30-40% in most states. Therefore, it said the distribution reform incentive package should be such that it incentivises states to undertake the reform process.

The incentive package proposed by the commission includes funding support besides assured power supply to the state electricity boards (SEBs) from PSUs like NTPC, NHPC and NPC for five years. The package will, however, be given to only those states that commit to implement distribution reforms.

Adopting a tough stance, the commission has suggested that no further exemptions be given to any state from the Electricity Act provisions/ timelines for SEB unbundling. “Unbundling of SEB and operationalisation of state electricity regulatory commission (SERC) be specified as the minimum requirements for receiving the distribution reform incentive package,” the commission said.

In order to bridge the immediate capacity gap, the commission has suggested capacity addition through short gestation projects (6,000 mw K-G basin gas-based generation along with wind power) and by enhancing existing capacities by improving current operations (5,000 mw by R&M and 2,500 mw by connecting captive power to the grid).