Tame distribution losses, say experts

The government's move to set up a committee to stave off problems in the power sector has sent a positive signal to the industry, but not many are convinced of its effectiveness.

Experts say unless issues related to distribution losses are resolved by the state government, solutions at the central level would not mean much.

A silver lining, though, can still be found. Matters concerning the Central government, such as environmental clearance and coal allocation, are expected to be sorted out soon.

After meeting power sector chiefs yesterday, Prime Minister Manmohan Singh had announced setting up of a committee of secretaries to be headed by his principal secretary, Pulok Chaterjee, to look into the woes faced by the sector. The committee will take action in a time-bound manner.

"The Committee of Secretaries is unlikely to propose any new solution, which would be different from what the previous committees have suggested. Earlier, too, there had been committees, but the problem lies in implementation. There has not been any word on implementation of recommendations given by the Shunglu committee report that was released some time back on the financial position of discoms,” Fitch Ratings Director Salil Garg said.

In 2002-2003, he said, when a bailout package was given to discoms, based on the Ahluwalia committee report, the issue was that power companies need to recover cost of power from consumers. The problem still exists. State governments have a major role in discoms and tariff issues, but the central government can still try to push such things.

According to the latest available figures of the power ministry, distribution losses in 2009-10 stood at Rs 1,06,347 crore.

Ernst and Young, partner and industry leader of infrastructure, Kuljeet Singh, sees some positive signals. "The setting up of a committee is a step in the right direction. This is an indication that problems related at the Central government, including environmental clearances and coal allocation, would be sorted out quickly.”

On the financial health of the discoms and other state related issues, he said the Central government can directly or indirectly ask the states to take specific actions. “At least, there is an effort to find out solutions to the issues bothering the sector,” he said.

The issues impacting the sector include coal shortages, strained finances of power distribution companies, rate problems involving new ultra mega power plants, gas linkage and environmental clearances.

In a separate report, Fitch said the launch of new generation projects will slow down in 2012 due to lower investor interest over fuel availability, softening of merchant power prices, higher fuel costs, higher interest rates and slow progress on reforms at the distribution level. The access to capital would be restricted for weaker entities, including state power utilities and greenfield projects.