The debt restructuring package for SEBs is a matter of survival: Veerappa Moily

Veerappa Moily spoke to Jyoti Mukul & Sushmi Dey on how the package is in the interest of states

Union power ministry is one place where ministers seldom stay. Though Sushilkumar Shinde had six years to his credit, the last two years were extremely challenging for the sector. When he moved to the home ministry on August 1, the portfolio was given to Veerappa Moily in addition to corporate affairs..

Within two months of this came the big-bang announcement of debt restructuring on Monday. Moily spoke to Jyoti Mukul & Sushmi Dey on how the package is in the interest of states. Edited excerpts:

How far do you think the debt restructuring package for state electricity boards [SEBs] will help reform the sector?

 

Debt restructuring is an important scheme. Work on it started in October 2011. There are number of generation projects coming up, so state discoms [distribution companies] must be in a position to buy power. If they are making losses, they cannot invest in setting up power lines and will not be in a position to discipline the network. The AT&C* losses are 27 per cent of the power generation and in some states it has gone up to 40 per cent. A time came when lenders refused to finance discoms. State governments often want to subsidise consumers but do not provide subsidy. The cost of purchase of power increased resulting in high distribution losses since tariffs were not revised for years. All this resulted in accumulated losses coming to Rs 2.46 lakh crore. Seven states account for 75 per cent of it.

But why would states be eager to take on 50 per cent of the short-term lending, especially when they are in a tight fiscal position?

It is not a question of being eager. It is a question of survival. It is a demand-driven programme and it is in their interest. The scheme is not mandatory but there are mandatory conditions. For instance, state governments should convert loans into equity. All outstanding energy bills have to be paid to discoms by December 2012. Besides, states have to prepare a road map for the involvement of the private sector and notify tariff order by the end of financial year.

The package is being seen as another jolt for consumers since power tariffs will go up every year.

 

Reform doesn’t mean taking away from the aam aadmi [common man]. Reform means giving something to him. Now, he gets power for three hours a day. If you are in a position to give him power for 12 to 13 hours a day, then productivity will increase and he will benefit.

We are not asking states to cut the cross-subsidy. We are not preventing them from giving subsidies, either. We have said, rationalise tariffs. State regulators will determine the tariff. While fixing it, they will keep in mind the interests of farmers and the aam aadmi. Twenty-one states have revised tariffs after the APTEL** order. Besides, fuel cost adjustments will have to be allowed.

How far will the transitional finance being offered by the Centre help the states?

 

For every one per cent reduction in AT&C losses, over and above APDRP*** norms, Rs 1,500 crore will be given by the Centre in transitional finance. In another 10 years, the government incentive would be about Rs 24,000 crore. This is in addition to our incentive to restructure and reschedule loans.

The Centre is also drafting a model State Electricity Distribution Responsibility Bill. What is the need for it?

 

The restructuring scheme has a condition that states need to enact this legislation. Just as each state was asked to enact the Fiscal Responsibility and Budget Management Act about a decade ago, and they resisted it but ultimately everyone enacted such legislation, states will agree to this as well. All the mandatory conditions in the scheme will be part of it.

But tariff-setting is the regulator’s responsibility...

 

There are several categories of consumers. The capacity of each consumer will have to be seen. Regulators as stakeholders need to take a decision at a particular point of time. Despite the regulators, power tariffs were revised once in so many years. The Act will make it binding on the regulator, discoms and states. We have started drafting the model legislation.

Just before you took charge, there was massive grid failure. Do you think it would be prudent to allow automatic shutdown of power when there is an overdrawal?

 

Grid failure occurred due to overloading by the western grid and overdrawal by the northern grid. Sometimes maintenance is also taken up. If everybody follows grid rules then this will not happen. We need to ensure through the latest technology that such things do not happen but blacking out an entire state is not good. It is easy to say but it is not practical and there are humanitarian issues as well. There needs to be self-regulation at the state and central grid.

Though generation capacity addition had accelerated in the 11th Plan, the fuel crisis meant capacity was stranded. How practical will it be to add capacity when fuel is not easily available?

 

One factor cannot kill another. We have a 12th Plan target of adding 84,000 Mw power but this can go up. There are projects worth a capacity of 82,000 Mw that are underway and Coal India has assured fuel linkages for projects of about 60,000 Mw. We have added 54,000 Mw in the 11th Plan. Coal India has limited capacity for excavating coal. Even the Comptroller and Auditor General’s report covers coal blocks that impact capacity of 17,000 Mw, but is not covered in the 12th Plan target. It will have impact only in the 13th Plan, so we have time to sort this out. India has the fourth-largest reserves of coal of about 4 trillion tonnes. We are producing 600 million tonnes. Maybe after 50 years, nobody may need coal because of the various alternative energy and technology. I do not agree with raising both hands and saying we have no coal. It is a question of resolving the problems with Coal India. Coal may be allotted through auctions, though the Supreme Court said the mode of allotment is an economic decision. Coal cannot be a problem, provided we find ways and means to exploit it. Before we exploit coal, they have to go through the competitive bidding process for power.

The revised tariff bidding document is being finalised. That will be the standard guiding principle. It will be only in favour of consumers but allottees will not get windfall profits. Coal cannot and should not be an issue. We need to take quick decisions. If you want nine per cent GDP growth, you must have eight per cent growth in the power sector.

The government has been criticised for allowing Reliance Power to use surplus coal from its Sasan project. How do defend this, and when are you likely to finalise a surplus coal policy?

 

That was an exceptional case. But whenever a coal block is given, coal has to be utilised for a particular project. RPower sought government permission and the Empowered Group of Ministers then cleared it. If any surplus is available, they need to come back to the government. There will be checks and balances to prevent profiteering. Ultimately, power consumers will benefit.

*Aggregrate technical & commercial; **Appellate Tribunal for Electricity; ***Accelerated Power Development and Reform Programme