Policy reforms, infra growth, unbundling key to power sector growth: E&Y report

The power sector had suffered due to lack of fuel availability, capital and under-recovery of costs, EY report argued

The power generation sector would do well to unbundle state utilities and purchase power under the ‘cost-plus’ route, EY has said in a report on the power sector.

The report, ‘Energising the power sector’, argued the sector had suffered due to lack of fuel availability, capital and under-recovery of costs. Also, about 28,000 Mw of power purchase agreements had been signed at low prices, largely below Rs 3 a unit, it added. “A large value of power capacity under state utilities can be unlocked if monetised through listing/divestment…also, the government should give one-time relaxation to projects that have cost and time overruns due to fuel non-availability,” it said.

The interest of global investors in power generation had declined during 2006-13, the report said, adding inadequate transmission infrastructure and the poor health of distribution companies had worsened the situation.

According to EY, the key growth drivers for the sector were a thrust on manufacturing, an increase in urbanisation and a potential economic revival. An increase in power demand would lead to reforms in the sector, the report said.

Sustaining growth would require substantial investment by private entities. The report said “an increase in the pace of the development of new transmission lines, especially inter-state corridors” was required. “In line with this, distribution franchisee should be taken up to reduce AT&C (aggregate technical and commercial) losses.”

The report put the onus to provide an investor-friendly policy environment on the government. It lauded various reforms brought about by the Centre, primarily the re-allocation of coal blocks, gas pooling and amendments to the Electricity Act, 2003.