Indian Power Sector woes- Is Privatisation the only Solution

Several Private Organizations in the country that believed in the resurrection of the Power Sector and sunk large funds and capital are today crying foul.

The sectors key issues are largely due to the poor health of the SEB's that are unable to turn around and report huge losses.Sector experts say the losses of the state utilities are a big bottleneck because they often prefer to cut supplies to reduce losses.This leads to situation where consumers face blackouts while power plants have surplus capacity because the intermediary is inefficient and financially insolvent.

No state has signed new power purchase agreements since 2013,and many continue to opt for load shedding rather than buy power,forcing outages.

Commercial establishments and Industry are forced to depend on expensive power from DG sets.Karnataka today is reeling with scheduled and unscheduled power cuts and so are several other states.

A hard fact to digest...India has an installed capacity of 90000 MW of DG sets providing power at a cost of Rs20/unit.

The fundamental challenge is that the SEBs need to be managed better and there must be a plan in place to turn it around.

The debottlenecking of Coal,Gas and fuel and solutions to the supplies of fuel , notwithstanding...how do you address the issues of SEBs..

This sector is plagued by corruption across the system,poor monitoring and inefficient distribution and transmission, resulting in huge losses.

There has been several rounds of restructuring, the recent one being in 2013.

This has however not helped as the Govt has not been able to identify and manage the root cause.The APDRP and R-APDRP schemes and the Govt backing have failed to uplift the Discoms. Their financial position is terrible thanks to widely spread corruption,power thefts and revenue leakage.

Without a transparent process and operational norms,no hope is on sight for a resurrection.

The SEBs did initiate (a decade back) privatization through the Distribution Franchisee route.

However there was a fundamental issue.The Distribution Companies were willing to handover only the worst performing sub divisions to the private sector,those pockets that had the highest AT & C losses,those with the reputation of known pilferage,those that were simply inefficient. The Business model adopted was meant to ensure Failures.

The yardstick for this selection was 70-80% AT &C losses....and where collections were extremely poor...

It was is if that the GOVT wanted these failures to prove that its impossible to turn around these bodies and they are destined to function as loss making entities that serve no purpose to consumers,a typical "didn't we tell you,it won't work' syndrome..

The Private Sector did make enough investments -deployment of IT ,GIS,Process automation wherever possible.All of them eventually rued their decisions.

However,foreign and Indian firms are still willing to invest in India's private sector .The key problems of the Indian power sector would have to be sorted out.There is never any dearth of investible funds in the world and the Indian power sector could be a good destination if the key issues are and adressed.

No Country has recorded Growth without a strong Power sector- Distribution,Transmission and Generation backbone.

This backbone of India is indeed a fragile one,with multiple fractures,severely abused by the system and one which needs a lot of support.

An estimated $250 Billion is needed in the next five years to resurrect this sector and the good news is that International and Local Bankers are willing to invest in these projects.

The country's Premier power generator NTPC is under tremendous pressure with several of its units running at 70% PLF and which generates power as low as 2.50 Rs per unit as the Discoms are unable to buy power due to their financial health.

There is no guarantee that power would be picked up even if there are "PPA's in place.

The Govt is clear that no central package would be made available for debt ridden loss making State run power Distribution companies .

Debt would be hard to come from the Govt but selective funding for good projects will be an exception.

The Government has clearly stated no more restructuring of the SEB's and this is a move in the right direction.

SEB's have no answers ,no solutions in sight ,no motive or intent to cut transmission and distribution losses.

India is caught in a strange paradox though. Often times it has "surplus power" in the grid that no power company wants to buy and it also has a lot of power cuts ??How is this possible??

The reason is Power economics in India is far too fragmented and broken and everyone in this supply chain ,from coal miners to power generators to power distribution companies and their bankers are broke.

This is a much larger political economy at play.

This sector is bogged by deep rooted corruption,power theft ,inefficient Organisations that do not want transparency.

One doesn't understand the appointment of committees, long years that we take to publish a report that these Discoms are corrupt.

The recent CAG report and audit found that a Discom had capitalized 22.10 lakh meters while there were only 18.49 lakh consumers.

Let's accept the fact. There is no need for audits and checks. Corruption,Power Pilferage is rampant and this has political backing and support.

Take a look at these facts

-The losses of the Power Distribution Companies have touched a high of Rs 2,86,000 crore or 2.3% of our GDP.

-Distribution Utilities have a negative worth of Rs 81,000 Cr at the end of FY 13

-RBI estimates at least 53000 Cr of loans at risk

The proposed plan to freeze the non performing debts of the state Discoms with an objective of giving it a fresh lease of life is perhaps a wrong move by the Govt , yet again.

We need the Govt to think radically and perhaps full fledged Privatization of Power Distribution is the only way ahead.

Sunil Rao

(The author is a senior Executive in a Tier I IT Services Organization)