Power capacity addition entangled in red tape

Written by Sanjay Jog | Mumbai | Updated: Nov 29 2009, 03:16am hrs
Even as there are immense opportunities to add a proposed capacity of 170 giga watt with an investment of Rs 17 lakh crore over the 11th and the 12th Plan period, Indian power sector continues to face administrative, procedural, regulatory and financial challenges. While policy actions of the central government and regulators have been in the right direction, implementation of those regulations, which rests upon state governments, has been found wanting.

Further, due to the sectors concurrent nature (implying it is under the purview of both the Centre and states), the central government has also been unable to implement reforms.

Fiscal discipline of state electricity boards (SEBs) continues to be an issue, especially when the aggregate loss of SEBs (without subsidy) is of Rs 27,500 crore and outstanding receivables of Rs 47, 400 crore (36% of revenue). The report warned that lack of fiscal discipline at distribution utilities end, which essentially have access to end consumers, could derail the entire reform process.

In a 90-page comprehensive reportIndian power sector, a growth story from 2003 to 2030Edelweiss Research said, Key structural changes in the Indian power sector since 2003 include lower credit risk for asset owners and higher incentives for private sector participation. We believe these are likely to drive the long-term growth story in the sector. India is projected to have power generation capacity of 750 gw by 2030, which is expected to be the third highest globally. This implies annual capacity addition of 20-25 gw against the average annual capacity addition of 5-6 gw in the 11th Plan so far.

Although policy formulation happens at the centre, implementation of power, being a concurrent subject, lies with states. Power is highly politicised subject and often has a bearing on the outcome of elections. More often than not, reforms take a backseat, given the political nature of the sector.

In most cases, state utilities control distribution assets along with access to end customers. Tariff for different consumer categories is determined by the respective state electricity regulators based on fixed return on equity norms. Since the hike in tariff has not kept pace with the cost of supplying power, losses have been rising for distribution utilities.