Power Sector Will Need $143bn In Next 10 Years

The investment required in the power sector over the decade beginning 1996-97 will be around Rs 500,000 crore ($143 billion).

This estimate has been made by the expert group on commercialisation of infrastructure projects here yesterday. It, however, cautions the power sector will fail to support the economy, if the investment is not utilised optimally, The group says about 70 per cent of this investment has to routed through debt. While the sector could expect special consideration in the allocation of foreign debt entitlement, the bulk of the debt finance will have to be raised in rupee.

It said easing the investment flow and implementing programmes for capacity utilisation are contingent upon a range of measures to transform organisational, ownership, pricing and regulatory patterns.

 

One critical short-term task is the drawing up of a long-term policy for sectoral reform.

Given the identified investment needs, there is little room for ambiguity about what the sector should be like a decade hence; a large private sector presence that would account for ownership of upto a third of the sector assets in 2005-06, governments withdrawal from regulatory functions, entry of autonomous regulatory agencies at Central and state levels and a pricing regime that reflects competitively determined costs.

The group suggested the following measures with regard to pricing, regulation and privatisation:

PRICE REFORMS:

Setting cost-based pricing for each consumer segment as the reform aim and implementing the transition in a phased manner. Ten per cent increase in average tariff per annum (net of inflation) is recommended till the target levels are reached.

Providing metering at the consumer end or at an intermediate distribution point. In the latter case, the intermediate agency will pay for the metered supply and be responsible for apportioning the charges to the consumers and its recovery.

Identifying institutional means to administer subsidies to target consumer groups; there should be no compromise on the principle that full cost of subsidies will be recovered on the metered supply.

Independent regulation of prices, with provision for reform to be balanced by improving quality of service, technical or commercial.

REGULATORY REFORMS:

Necessary changes to be initiated in statutes for autonomy of regulatory agencies, both at state and Central levels.

State-level regulation to cover consumer tariffs, overseeing sector undertakings within the state, both public and private, on equitable terms, monitoring service standards and approving projects below the threshold specified for Central clearance.

Central regulation on bulk generation and inter-state transmission tariffs, project approvals above the specified threshold and enforcing right of access to the inter-state and inter-region network.

PRIVATISATION:

Privatised distribution to be eased through changes in the existing scheme for private licensees. Main changes to include flexibility and transparency in pricing and introduction of concepts of quality and service standards.

Private power projects to be expedited, while ensuring that contracts and prices are on balanced terms; project approval arrangements to be modified to bring greater transparency.

Scheme for competitive bidding to be elaborated to ensure bids elicit adequate competition, and the bid terms permit fully transparent evaluation and award of contract.

Bidding route to include the least cost option not for specific projects but for megawatts; global tendering for equipment and fuel.

Stipulation in the statute regarding cost-plus pricing to permit flexible tariff structures for bulk generation.

Additional power to be generated by independent power producers would call for matching investments in transmission and distribution; private investment to be tapped by encouraging public and private joint ventures at Central and state levels.

The management contracting option to be promoted to bring about efficiency in existing units, to improve commercial performance and upgrade plant utilisation.

According to the group, objectives of the core reform programme can be realised if recast steps are to improve state electricity boards.

The group said several approaches should be encouraged for restructuring.

It said regulatory reform would be incomplete if the changes exclude the Central Electricity Authority.