Power play

No modern society can survive and grow without reliable, affordable power. This gives the power sector a social dimension as well as a purely economic role. Unfortunately, it also means that political parties use cheap power as a lever for winning votes. The sector faces continuous political interference. The Centre, states and private players co-exist. Many states offer free or highly discounted power to farmers and households. These freebies are cross-subsidised by charging very high tariffs from industry. In addition, there is rampant power theft, with units consumed being written off as transmission and distribution losses (T&D losses). Over the years, huge losses have accumulated. The sector's accumulated losses are equivalent to about 4 per cent of GDP. In addition, bulk of all non-performing assets - bad bank loans and bad debts sourced from other lenders - are in the power sector. State utilities owe the equivalent of 3.5 per cent of GDP to sundry creditors. Banks have more or less stopped lending to power-sector companies and power projects. Successive governments have tried, in half-hearted fashion, to correct the situation. When a political party is in power (at the state level), it may try to cut losses. When a party is campaigning, it promises more freebies! Reforming the sector Despite this push and pull, some reforms have gone through. First, state electricity boards were split up, usually into three separate companies that handled generation, transmission, distribution and collection. This helped figure out which stage of the business suffered maximum losses and hence needed most attention. Second, state electricity regulatory commissions were set up to control tariffs; there is also a Central Electricity Regulatory Commission. Accounting was made more transparent so that it became a little clearer how much subsidy states were handing out. States were offered incentives to reduce losses under programmes like the APDRP, Accelerated Power Development and Reforms Programme. Central power utilities, such as NTPC and Power Grid Corporation, were also guaranteed payments by states, which made tripartite agreements with the utilities and the RBI. This was one form of temporising. At least some payments were made to the PSUs. But losses continued to rise. Private p

This article was originally published on June 06, 2017.