Dhaul is also the managing director of Fusion Energy Technologies Pvt Limited, an energy services company which is also registered with the the World Bank as consultants. He has also worked as consultants to the Karnataka Electricity Board (KEB) for the 1000 mw Cogentrix project in Mangalore besides preparing a report on Enron's Dabhol project for the Maharashtra State Electricity Board (MSEB) in 1992.

In an interview with The Financial Express, Dhaul spoke about the issues concerning the power sector.

Some Excerpts

What are the issues which need to be addressed in the power sector?
If you look at the power sector from the point of view of the consumer, you will find that their is aneed to create a market mechanism by introducing elements of competition in the power sector which will bring down the cost of power. Otherwise, whatever you do, be it the SEB reforms, be it the mega power policy or the setting up of a power trading corporation, these initiatives will meet with limited success.

I think the power sector needs to be completely deregulated. And this can be achieved by eliminating procedural hassles. Moreover, there is an urgent need to strengthen the transmission system for ensuring smooth movement of power to various regions of this country. For this, private sector participation should be encouraged through necessary policy changes.Then, there is a need to strengthen the global accounting system and also to evolve a strong policy framework. So nobody sets up a power plant but a merchant plant. The SEBs will automatically get converted into trading house centres which will mean unbundling of these organisations. Then there will be no long term obligations to buy power witherby SEBs or the Power Trading Corporation.

I call for a complete change in the mind set where we should get rid of the existing categorisation of liquid fuel power, mega power and concentrate on providing cheap power to the consumers. This can come only if a market mechanism is introduced. Competition will itself bring down the cost of power.

What do you think is the reason that power projects have failed to take off?
There are many reasons to it, but the foremost is the lack of political will. Few years back, the government announced the setting up of liquid fuel projects and invited private sector participation. Today after three to four years, the issues related with those projects have not been sorted out as yet. This clearly shows that there was a lack of planning at that time when these projects were conceived. As many as 300 private sector companies, participated in these projects. Today, only four to five are in a position to achieve financial closure. The reason is lack of planning anda strong political will to take these initiatives ahead.

Issues related with the health of SEBs have not got sorted out and the lenders are not ready extend credit lines for private sector projects as a result of which IPPs may have to move towards high cost funding resulting in high electricity cost. In the times to come, there will be no demand for this high-cost power and these units may even turn into unviable entities. Issues like cross subsidisation and the poor health of SEBs should be dealt with as the foremost priority for future investments in the private sector.

Given the current state of the SEB's, what do you think should be done ?
The entire approach to the power sector has to change from its present form to consumer-drivn. All the ills of the sector are primarily drawn from the fact that the policy and the implementation do not take the consumer concern into account. Issues like cross subsidisation is the major cause of SEB's sickness. The growing subsidy bills year after year isalarming and needs to be capped immediately. Setting up of SERCs and CERC is a right move in this direction.

How do you view the government's policy on mega power projects?
Mega power projects is a good initiative but it is doubtful that these projects will take off within a short period due to reasons of payment security and taking into account the cost of allied infrastructure which includes transmission costs, fuel imports, fuel handling, whether these projects will be in a position to deliever cheap power, is to be seen. Mega power policy is a good move in this direction but it is being conceived as a threat by most of the IPPs.

Then the concept of setting up a Power Trading Corporation (PTC), which is proposed to be set up under the mega policy is again a very good move. However, there are concerns over the security package proposed for this trading body.

The security package proposed for PTC consists of a back-to-back letter of credit from the ultimate offtaker, the SEB, stategovernment guarantee and a charge on the central devolution of funds. But SEBs as a stand alone credit, is unacceptable to most lenders without appropriate credit enhancements. Since revenues of SEBs are already covered by escrow to other IPPs, its ability to provide LCs is limited. You have been talking about power trading.

Will you throw some light on it?
Power trading is about consumer choice for electricity supplier, deregulation, higher efficiency and open access. To some extent power trading is already happening in India in the form of inter-state and inter-regional transmission and sale of electricity. A new form of power trading that could occur in near future is from the IPPs.

For example, Maharashtra may become surplus in power after commissioning of the Enron's power project in the state and electricity could be sold to load centres outside Maharashtra either to a clusture of industry or directly to another SEB. Several IPPs are likely to come up in the next few years and at leasttemporarily these states may have surpluses and may want to supply the surplus to other states. These would be the first IPP-based instances of power trading in India. However, lack of adequate transmission network, electronic network systems, adequate private sector players in T&D and shortfall in the availability of power will severely restrict the possibility of retail power trading as it is happening in developed countries for sometime to come. Power trading will result in a benefit to the SEB and to the consumer by reducing the cos.