Column: Fixing distribution is key

Dec 09 2013, 05:50 IST
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SummaryBailouts will not help, reforms to make power production and purchase viable are a must

In order to provide a thrust to the economic growth of India, it is critical that power sector reforms are fast-tracked. Noting the rapidly increasing gap between electricity demand and generation capacity, the government of India is striving to attract increased private sector participation in generation, transmission and distribution. While there have been some movements towards attracting investments in the generation segment, there is a pressing need for reform in other aspects of the power value-chain including the distribution segment. Until this is done, the power sector will not be able to attract sufficient investments as it is plagued by many hurdles and process delays.

The Power Finance Corporation’s (PFC) September 2013 report, The Performance of State Power Utilities for the years 2009-10 to 2011-12, underlines the immediate need for making the distribution sector financially viable. The report highlights the key issues in the distribution sector including tariffs being kept artificially low, high level of receivables from the sale of power, operational inefficiencies, and insufficient investments in infrastructural improvements, amongst others. Though initiatives such as the continuation of the R-APDRP scheme (Restructured Accelerated Power Development and Reform Programme) to incentivise the utilities for sustainable reduction in losses have been adopted, and the financial restructuring plan of state distribution companies has been notified to bail out the cash-strapped discoms, much more needs to be done to accelerate distribution reforms, as this would have a direct impact on the sector’s commercial viability and ultimately affect the consumers and generators. The public private partnership (PPP) model or the distribution-franchisee model is a good route to bring private investments in the distribution business and should be implemented across states.

This is the second time in a decade that there will be a bailout for the discoms and it is a matter of grave concern as the bailout will negatively impact the sector as it does not address the actual issues confronting it. It may also be noted that the first bailout did not prod the state governments to act.

This is the time to strengthen the distribution segment instead of offering bailouts. The sector has been plagued by high distribution losses (as high as 35-40%) and low billing recovery, which has resulted in poor financial health of the utilities. As per the PFC report, the aggregate losses (without accounting for subsidy) for all the utilities increased from R64,463 crore in the year 2009-10 to R74,291 crore in

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