The central government has taken key policy initiatives like mandating tariff-based bidding for allocation of power projects and allowing power trading besides the launch of ultra mega power project (UMPP) scheme to attract private investment in the Indian power sector. However, states are dragging their feet in implementing key provisions of the Act.
Meanwhile, most state electricity boards (SEBs) continue to report huge losses. Despite their unbundling into separate generation, transmission and distribution entities, state governments continue to control them through holding companies.
The Centre launched the Accelerated Power Development & Reform Programme (APDRP) to provide financial assistance to SEBs for undertaking projects to reduce their aggregated technical & commercial (AT&C) losses from 33% to 15% during the Tenth Plan. However, the scheme was a dismal failure. Latest statistics show, SEBs? losses stood at 30% in 2008-09. Commercial losses are mainly due to theft and pilferage. The Centre has tightened conditions for availing the benefits of the scheme. Provision of over Rs 50,000 crore has been made on this account. But its success is far from certain.
A vibrant power trading market is the first step to attract private investment in the sector. The Electricity Act provides for open access in inter-state transmission. However, states are not implementing open access as they want to curb export of surplus power. Not surprisingly, many power traders have surrendered their licences.
Section 11 of the Electricity Act 2003 grants powers to states to issue directive to power generators under emergencies like floods. But states misinterpret these provisions to prevent export of power. The central government has launched the UMPP scheme to attract private investment. So far, four UMPPs have been allocated to developers through the tariff-based bidding route. The UMPP model power purchase agreement provides that a developer can divert surplus power in case an SEB defaults on its payment.
However, the developer will have to find a new buyer who might not be located in the same state. So, it will need open access for export of power. But with states not in favour of allowing export, it is not clear how a UMPP developer will sell surplus power in case of a default by an SEB. The result was that while domestic players bid aggressively for UMPPs, overseas players stayed away. States have set up electricity regulatory commissions as mandated by the Electricity Act. ?These commissions are supposed to be independent and check monopolistic tendencies of SEB,? says Pramod Deo, chairman, central electricity regulatory commission (CERC). However, states are still controlling their SEBs through holding companies.
The result is decision-making of state power distribution utilities is affected by political considerations of state governments. For example, when governments face risks of political backlash from power shortfall, they force discoms to source it from free market at any price. Discoms often end up making panic buying due to political pressures.
