The country is barely recovering from the fiasco of cost-plus pricing and guaranteed offtake from power producers like Enron's Dabhol, and the N.K. Singh task force on power investments has virtually recommended a return to that era. | |
| Indeed, there was some movement towards sanity over the past few years with the new electricity bill finally getting passed, and some state governments beginning a move towards genuine competition in the form of 'open access' "" last month, the Kerala regulator allowed Indal to bypass the existing state electricity board and buy power from anyone it wished. |
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| So a situation could be envisaged in which firms would compete to supply power in the same geographical area, and this would lower prices and improve quality for customers, in the same way as happened in telecom. |
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| Indeed, companies like Reliance have already begun asking for a second distribution licence (this is not the same as 'open access', but it's a start) in certain circles in Maharashtra that are currently serviced by the Tatas and MSEB. |
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| At a time when power trading is taking off (surplus power of around 100 MW of capacity in Delhi is transported all the way to Kerala every day right now), and even long-term contracts are increasingly being bidded out (in the DVB privatisation, no returns were assured to prospective bidders), what the task force's draft tariff policy has recommended is that a 14 per cent post-tax return be guaranteed for power generation and 16 per cent for power distribution. |
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| Since only government-owned corporations give such guarantees, effectively this means there is to be no genuine private participation in the sector. And if returns are guaranteed, where's the need to cut losses and make the system more efficient? |
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| There's also the problem of padding of costs, since that's the most rational thing to do when returns are guaranteed. |
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| While there was a Central Electricity Authority (CEA) that cleared the costs of projects earlier, power projects no longer need clearances from the CEA "" so firms are free to pad costs, and they are to be assured returns on these! It's interesting that when interest rates in the country ranged between 14 and16 per cent, the government guaranteed a 16 per cent return on power projects. |
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| Today, with interest rates at least 6-7 percentage points lower, the task force still wants to offer 14 per cent returns. Other recommendations, like increasing depreciation rates, are also aimed at hiking costs, since a 2-3 per cent hike in rates on even a Rs 10,000 crore project (the task force says the sector needs Rs 900,000 crore by 2012) would mean an extra outgo of Rs 200-300 crore per year. |
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| In any case, the Rs 10,000 crore power investment announced by Reliance in UP just last fortnight, shows investors are not shying from the sector for want of guaranteed returns. |
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| Why the government would want the task force to come out with such a tariff policy is itself a mystery since, under the brand new electricity bill, this is the job of the central as well as various state electricity regulators. |
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| Other suggestions, like the breaking up of NTPC, ostensibly to promote competition, are equally inexplicable, since more competition through open access is the obvious solution. |
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