Shunglu panel wants non-performing power regulators to go

The V K Shunglu committee, appointed to suggest ways to improve the financial condition of power distribution utilities, has suggested that non-performing power regulators be sacked.

The report has suggested stern measures because several state power regulators have not been carrying out annual tariff revisions, mandated by the Electricity Act.

The committee has also said that the distribution utilities should be heavily penalised if they fail to submit annual revenue requirement and the tariff revision proposal to the regulator.

The recommendations, if implemented, will bring relief to the ailing power distribution utilities and improve the regulatory set-up.

At present, the total losses of power utilities stand at Rs 70,000 crore.

The committee is worried about the working capital of Rs 1 lakh crore that distribution utilities have raised to bridge the widening gap between realisation and expenses (see table). The committee has suggested that if this has been audited by statutory auditors, the regulators should allow the utilities to make up for these gaps. Once the Comptroller and Auditor General (CAG) submits its report, the regulators should clear the expenses incurred, it says.

In some states, such as Bihar and Uttar Pradesh, where the utilities have not got their annual accounts audited, the committee has recommended penal action.

A power ministry official, who did not want to be identified, told Business Standard: “The committee is concerned over inaction on the part of power regulators over annual tariff revisions.”

For instance, in Tamil Nadu, the tariffs have not been revised for seven years. Due to this, the losses of distribution utilities there have surged to Rs 30,000 crore. Even the regulator has not initiated the exercise.

Officials said in some other states, such as Andhra Pradesh and Maharashtra, the regulators had not allowed the expenses incurred by the utilities even after the audit.

“If such a situation continues, it will pose a serious threat to the banking industry, as utilities won’t be in a position to service loans,” said an official.

“While the regulators should ask the utilities to step up efforts to improve realisation and bring more fiscal discipline, they should be prompt in clearing the audited expenses,” said the official.

Former power secretary R V Shahi questioned the need for having such a committee. “The regulators have to do their job of regular fixing of tariff, irrespective of whether the utility has filed the application or not. By January 2011, power regulators had to bring down the cross-subsidy within plus and minus 20 per cent of the average tariff. Any excess cost incurred by the utility due to unforeseen high-cost purchases of power was to be a pass-through in the tariff. Most regulators have failed on each of these issues.”

He said the power ministry should adopt the carrot-and-stick policy that was followed in the 10th Plan and which stabilised the financial losses of the utilities. “However, in the last four years, these losses have shot up by at least three times,” he said.

The committee is expected to submit its final report within two months.