Pulling the plug

Updated: Aug 2 2005, 05:30am hrs
The power ministrys move to curb the regulators powers by forcing it to toe the governments policy is fraught with danger. Where does policy end and regulation begin In the NDA regime, the ministry attempted to fix the rate of return for power projects. However, the Cabinet then threw it out of the window. Having lost round one, the ministry has now moved one step ahead change the law, instead. If this amendment goes through, the power policy can be abused by the government to push through populist measures, entirely incapacitating the regulator. Free power, pace of reduction in cross subsidy between consumer segments, distribution loss reduction targets, etc., are issues prone to abuse. These can delay power reform, a key to economic growth.

It is not as if regulatory functioning in states is bereft of political interference. In several leading reforming states, informal discussions give way to compromises on the subsidy payout level, as well as the pace of reduction in rate cross-subsidy between consumer segments. But then, the overall picture is a positive one, where rates are drifting towards the cost of serving. So, any attempt by the central government to fiddle with the interplay between the regulator and the state government is a retrograde step. Oddly, this step comes soon after Union power minister PM Sayeed telling the head of the Central Electricity Regulatory Commission he had no intention of reining in the latters functioning.

Rather than trying to tweak the electricity laws to extract controls from the regulator, the central government must focus on the principal objective of catalysing state power reforms, where its efforts are much wanting. In the absence of state government funds to improve the ageing power distribution systems, the regulator is left with no choice but to raise rates to recover losses and move towards the supply cost. So, rather than giving the dog a bad name and hanging it, the Centre must lock states into irreversible reform measures. And pump an adequate amount of funds to enable significant loss reduction in quick time, thereby working harmoniously with the regulator.