Power Needs Incentives, Not Guarantees: Bank

World Bank has said that the future investments for power generation may not require any government guarantee but there should be incentives in the form of privatisation of distribution.

Addressing a seminar on the power sector reforms, World Bank South Asia region director Alastair J Mckechnie said yesterday that private distribution companies with transparent and predictable regulation create the ``best incentive for private investment in power generation.''

Mckechnie said the fiscal condition of the power sector reforms in Asia was not improving quickly, even where reforms are being carried out. He said that it would be difficult to privatise distribution companies which were not profitable.

 

He also said social and political system might not allow regulators to be independent because of several confusing signals in the sector. He said transforming the culture of the sector required new owners that bring knowledge and management as well as cash.

The World Bank official said that the focus on competitive markets in Latin American power reforms was worthy of consideration by South Asian policymakers. He also said that power reforms would not be accepted by the public unless there was a tangible improvement in the electricity service.

He said theft reduction programmes by the army in Pakistan and rural cooperatives in Bangladesh that lead to striking reductions in electricity delivered to the power system and in certain cases, as much as 30 per cent in some towns in Bangladesh.

McKechnie said the current system of electricity price subsidies was cracking from stress induced by loss of industrial customers and fiscal black holes that subsidies to agriculture has created in India and Bangladesh. He said survey data suggest that electricity subsidies to agriculture go to wealthy farmers.

Central Electricity Regulatory Commission chairman S L Rao said within three years, regulators in the country would be in charge of most of the government owned entities. He said the tariff regulation would be in detail, but there would be a consistent approach to tariffs over the country.

There will also be significant improvements in electricity quality and distribution companies at the state level will improve their revenue collections and hence show an improved ability to pay their bills.

He said in another 10 years, regulators should be aiming to move out of detailed determination of generation tariffs into regulating markets and trading. Regulators should be also regulating entry and exit of generators and into transmission and supply, he added.

Karnataka Chief Minister S M Krishna said formation of independent distribution companies in the state would get completed by September 2001.

Krishna said with the state taking a decision not to extend escrow cover to any of the IPPs, private initiative, capital and management in the distribution of electricity was required.