Power paradox

Time to move on with power distribution reforms

India's power sector is facing a paradoxical problem. From a problem of shortages a few years ago, it now faces a problem of surpluses leading to sharply reduced utilisation of power generating capacity. Peak power deficits are on a decline, but there are no signs of the government putting in place an assured payments system that enables producers to get compensated for the power they sell to distributors. Nor are distribution companies in a position to charge all their consumers reasonable tariffs for the power that is supplied to them. This confluence of problems, if not tackled early, can blow up into a crisis and dampen prospects of the solid and sustainable infrastructure growth that is a necessary condition for an investment revival.

As reported in this newspaper earlier this week, output by Coal India Limited and its associates has been rising steadily. Last year, it was estimated at 494 million tonnes, a rise of seven per cent over 2013-14. In the current year, too, production is on an upswing as preparations are under way to reduce the gap between the domestic availability of coal and its total demand. On the other hand, coal imports, which had been rising in the last few years, straining the country's current account balance, have declined by over 19 per cent in the last year. The number of days for which coal stocks are available at the plants has now risen to a comfortable 23 days, compared to only six days a year ago. Also, the peak power deficit almost halved to 2.5 per cent from 4.5 per cent in 2013-14. Though electricity generation continues to rise at a healthy pace, the disturbing development is that the power generating units' capacity utilisation level has steadily fallen in the last few years even as peak power deficit has fallen. Last year, capacity utilisation slipped to just 58 per cent, implying a huge surplus capacity and investments that are yielding no returns for power generating units. Not surprisingly, the pace of adding to power capacity has slowed significantly with the pipeline of new projects running almost dry.

The core problem affecting the power sector now is no longer the availability of coal or adequate power generation capacity. While attention must continue to be riveted on these two critical areas, it is important that the more intractable problems at the distribution end are also tackled. Power sector reforms that made some headway in the generation and transmission sectors have made little progress in the distribution sector. In other words, the financially parlous condition of government-owned power distribution companies must be improved - not through doles or subsidies, but by fundamental reforms. Power distribution companies in many states are yet to be privatised, and consumers must get open access or have the freedom to choose from among competing power distributors. The distributors also need to be given operational autonomy to fix power tariffs under regulatory supervision, so that they can secure reasonable returns and do not turn financially sick. Electricity regulators need to be empowered and encouraged to play their mandated role to monitor power tariffs and other supply-related issues, to ensure orderly growth of the power sector and improved power availability for consumers. One way out would be to follow the Gujarat model,where the power distribution lines for the farm sector enjoying huge power subsidies are separated from those that feed industrial, commercial and domestic household sectors. This would help the distribution companies plug leakages and diversions to limit their losses. If Rajasthan too can think of following this model, it is time other states also followed suit.