The Maharashtra Electricity Regulatory Commission (MERC) has invited expressions of interest for the selection of a power distributor for the Mumbai suburb area where BSES is a monopoly electricity supplier, but its licence is going to expire in August next year. If the regulator has his way, it would be a watershed development in the Indian power distribution sector which is controlled by monopolies and riddled with operational inefficiencies.

Privatisation of power distribution may be a good idea, however, its benefits can be realised only when there is competition in the market. Privatisation without competition can lead to profiteering, defeating the very purpose of privatisation.

Significantly, Mumbai is one of the few cities in the country where power distribution has been privatised. MERC has to ensure that consumer interests are protected. Hence the need for competition for power supply in the area.

However, replacing one monopoly with another of the same kind may not provide much relief to electricity consumers of the area. What is needed is actual competition. Though open access offers a window for consumers to draw power from a supplier other than the distribution licensee in a circle, the concept does not seem to be working. Provision of open access to retail electricity consumers is subject to many fulfilling conditions. It is high time policy makers tried a new approach. Providing licence to multiple players for power supply in the same circle can improve the level of competition.

It is encouraging to see the Maharashtra electricity regulator taking a new initiative to protect the interests of Mumbai?s suburban electricity consumers. However, it should not be forgotten that MERC is able to function freely because power distribution in Mumbai has been privatised. It is difficult to imagine the MERC playing such a proactive role in distribution circles being serviced by state utilities.

As business enterprises, state utilities are supposed to act freely and make their decisions based on commercial considerations. However, in practice, they often operate as an extended arm of state governments and take decisions which are not in their best interest. This puts strain on their finances. That is the reason state electricity boards (SEBs) are in such a bad shape.

While there is a reason to cheer MERC?s proposed move, it should also be noted that power distribution in most circles in the country remains in the hands of state monopolies. Privatisation as an idea has failed to take off.

While the quality of electricity supply has significantly improved in Mumbai and Delhi since private players have taken over power distribution in these cities, tariffs have also risen fast. In Delhi, both BSES and NDPL have been accused of indulging in power trading for profiteering.

Besides, questions have also been raised about the way these private discoms maintain their profit and loss accounts. For example, BSES and NDPL submitted their annual revenue requirement (ARR) proposals for the fiscal 2010-11 to the Delhi Electricity Regulatory Commission (DERC), seeking a hike in electricity tariffs. But consumer associations protested strongly to the discoms? ARR proposals.

Their argument was that these discoms were hiding profits by cooking up accounts. They sought a third-party audit of discoms? accounts. Because of the controversy, the regulator held back its approval to the discoms? tariff hike proposal.

The privatisation of power distribution in Delhi was expected to be a model for other states. However, its discoms have themselves got mired in controversy, raising questions about the future of distribution sector reforms in the country.

Power distribution has been privatised only in a few cities. Implementing power sector reforms is politically difficult for most states. Leave privatisation aside, state governments are even reluctant to allow a tariff hike by their distribution companies to recover the cost of power.

So at the one end of the spectrum, there are private distribution companies that are suspected of overcharging customers and at the other end, state utilities that are not allowed even to recover their cost of electricity.

The poor financial health of state utilities remains a concern for power sector investors. There is a clear risk that investment into the power generation and transmission sector might choke if the distribution sector is not fixed soon. If the central government wants to encourage states on power distribution reform, it must come out with fresh policy initiatives like mandatory third-party audit of accounts of private distribution companies and multiple licences for the same circle. Otherwise, political consensus on distribution reforms would remain elusive.

Transmission: the Achilles heel

India has envisaged ambitious capacity addition in power generation. That would entail commensurate growth in transmission capacity to ensure smooth power evacuation. But timely implementation of transmission projects remains a big challenge, basically on difficulties in acquiring statutory and regulatory clearances.

The country has targetted to add 15,000 MW generation capacity annually over the next seven years. To provide facilities of power evacuation from these projects, an investment of Rs 1 lakh crore has been envisaged by the transmission sector.

?Transmission is one piece in the energy sector which does not get enough attention?, says Harry Dhaul, director general, Independent Power Producers Association of India.

?Getting forest clearances is a time-consuming process as approvals have to be obtained from various agencies. Meanwhile, land acquisition is also becoming increasingly difficult for transmission projects?, says PV Krishna, director-general, Indian Electrical and Electronic Manufacturers? Association.

The slow progress in transmission line projects could jeopardise the entire process. ?If transmission lines clog, system will choke,? Konstantin Papailiou of International Council on Large Electric Systems told Fe on a recent visit to India.

The lack of technical standards for transmission equipment is also a major problem. ?There are no appropriate standards specified unanimously by the central and the state utilities and in some cases tenders are floated with outdated specifications and design parameters which really causes a lot of trouble in the development of transmission projects,? IEEMA functionary said. ?If standard equipment specifications are agreed, it would go a long in expediting the project implementation,? he added.