Column : Déjà vu in the power sector

Aug 02 2012, 03:59 IST
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SummaryThe Chief Ministers’ Conference held in March 2011 discussed the state of the Power Sector and emphasised the urgency of power sector.

“The Chief Ministers’ Conference held in March 2011 discussed the state of the Power Sector and emphasised the urgency of power sector. The Conference noted the large amounts of dues owed by the SEBs to banks was a major impediment to reforms … and resolved to constitute an expert group to … recommend a programme for medium term capital restructuring and reform of SEBs”—Report of the Expert Group on One Time Settlement.

OK, this is not entirely truthful. The underlined words are fibs; they should actually read “2001” and “Central Public Sector Units (CPSUs)”. But they also underline the Groundhog Day moment for India’s power sector in 2012.

Even more bizarre, in a Twilight Zone sort of throwback to days current readers will not have the slightest idea about, the last time there was a major grid failure was January 2001, in the same Northern Grid. There was a huge furore then, with lengthy reports analysing the causes, resulting in formulation and refinements of the Electricity Grid Code and deterrent pricing using innovative pricing like “Unscheduled Interchange” charges. Skip to 2012, with another grid collapse—arising more or less out of the same grid indiscipline—and the institution of a more or less similar restructuring package to bail out pretty much bankrupt power distribution utilities.

Disconcertingly, both phenomena—grid indiscipline and discoms operational losses—arise of the same underlying problem: the lack of commercial orientation in electricity operations. This is a complex area, which needs to be explored over a series of articles. Consider the latter problem first, since that is at the root of most electricity troubles (we will explore the grid problems later, which are a manifestation of deficiencies in the basic business structure).

A series of articles in FE over the past month have highlighted the dire straits of the state electricity discoms. While there are widespread differences between states (and, indeed, between utilities in a state), the unsettling aspect of the recent performance of state level power utilities is the speed of deterioration in the sector’s overall financials, with losses almost tripling to R63,550 crore in 2009-10 in a matter of four years, from 2004-05. Accumulated losses have increased by R88,000 crore. After a period of relative tranquillity, financial losses are back to 2002-03 levels as a percent of GDP. Reduction in commercial losses has lost traction in the last couple of years; after dropping to 27.7% in 2008-09, after reduction from a peak

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