Wrong power focus

The power crisis in the country has taken a new form: there just aren’t enough buyers in the market. Strange as it may sound, the supply is way ahead of demand. Such a situation has arisen because the electricity boards of most states are mired in losses, and are left with no money to pay for power. This has resulted in bigger and bigger power cuts for households in the peak of summer. Spot power rates have fallen to around ₹ 1, but even that has failed to attract the electricity boards. As many as 57 power stations, The Indian Express reported last week, have shut down because of lack of demand. The country’s average plant load factor fell from 71.12 per cent in 2009- 10 to 65.1 per cent in 2014- 15, according to Ahmedabad- based Consumer Education & Research Society. Worse is to come. Very soon, the wind farms in the south and the hydro- power stations in the north will up their output. And once many of the stalled gas- and coal- based power projects get started, the country is sure to rush headlong into a crisis if SEBs cannot afford to buy their power. Excess supply will destabilise the grid, as the Northern Grid blackout of 2012 demonstrated.

This shows how diffused the government’s focus on the sector has been.

All the reform efforts so far have focused on generation. Transmission and distribution need focus too — and, truthfully, the real problem is intermediation.

Even if capacity and fuel availability increases sharply, the debt overhang with unreformed state electricity boards will still stop them from buying power which means there will be little change on the ground. The country may indeed become “ power surplus”, as the government promises, but that will be meaningless unless there is a robust infrastructure in place to carry that power to the consumers.

Most electricity boards have been reporting losses for quite some time.

This is a political creation: Much of these losses have resulted from free power to the farmers; the other factor is theft. There has been some talk of getting the private sector into distribution but that cannot happen unless the states introduce some kind of user charge for farmers. In its absence, the interest of the private sector may not go beyond cities, which will not fully solve the problem. The problem is that too few attempts have been made of late to bring them out of the mess. According to some estimates, the total accumulated losses on the books of electricity boards are in excess of ₹ 2.5- lakh crore.

Their balance sheets are too damaged to raise fresh debt. In recent times, some states have made higher provision to capitalise their electricity boards, but this is an exercise which will cost a lot of money. The United Progressive Alliance government introduced a scheme to restructure the finances of the electricity boards but there were no takers for it. The present government — which is proud of its federal approach — should focus on getting that scheme off the ground.

Reform of state electricity boards more vital than capacity increases

Source: Business Standard; 02 June 2015

URL: http://epaper.business-standard.com/bsepaper/svww_zoomart.php?Artname=20150602aN013101002&ileft=8&itop=637&zoomRatio=130&AN=20150602aN013101002

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