What should be the three top priorities of the government vis-à-vis the power sector?

P.N. Bhandari
There is huge scope for investment in generation, transmission and distribution. In the past, getting clearances for power plants was a nightmare. Fortunately, generation has been delicensed under the Electricity Act, except for hydel generation. It is paradoxical that when the government wishes to give top priority to hydel generation, this restriction has been retained only for hydel generation. Such licensing, if at all, should be confined to interstate projects only. Delicensing of hydel generation would trigger faster growth. Solar energy, wind energy and energy based on biomass, municipal waste, etc. also needs to be taken up on a war footing.

Due to a misplaced emphasis on unbundling and restructuring, basic reforms in distribution tend to recede to the background. If theft and technical losses can be reduced, half the battle would be won. Advanced meters can precisely identify the date and time of any manipulation in the meter. With tamperproof meters, seals and meter boxes, thefts can be substantially curbed in all categories except perhaps agriculture where a different strategy may be required. In theft-prone areas, the use of ABC conductors can also be a great help.

Long LT lines attract en route hooking and theft. Large capacity transformers involving long conductors should be replaced by smaller capacity transformers. Each transformer can cater to one or two farmers. This would check en route theft. Meters are often damaged by farmers. If the minimum charges are raised, the farmers will realize that a running meter is cheaper than one that has been stopped. In slums, the high incidence of theft can be curbed by use of underground cables. These measures would significantly reduce losses and make distribution privatization more attractive.

Anjan Ghosh
The top priorities of the government should be to:

• Continue with distribution reforms and further aid the process of improving collections by setting up special courts to deal with theft of electricity as envisaged in the Electricity Act, 2003;

• Ensure segregation of the integrated SEBs on functional lines within the extended time-frame granted by the union government.

• Facilitate the development of a competitive power market through creation of a state load dispatch centre, introducing open access in distribution, deciding on a time-frame within which cross-subsidies are phased out and ensuring that the free play of market forces is not thwarted by measures like artificially high duty on captive generation.

• It may be worth mentioning that most of these actions fall within the purview of the state governments. The union government needs to continue with its focus on the APDRP as a means to strengthen the distribution sector and incentivise the states to reduce losses and facilitate capacity addition through central power sector undertakings (CPSUs).

C.P. Jain
Rationalisation of tariffs to cover the cost of supply should be the topmost priority. Providing subsidy to any category of consumer is the prerogative of the government. However, the subsidies should be fully covered through subventions by making provisions in the budget. The electricity utilities should not be made to bear the brunt of subsidies.

The next priority is to further distribution reforms. This segment generates cash for the sector and the drain in this is a major cause for the industry’s maladies. Therefore, it is of utmost importance to further distribution reforms and reduce AT&C losses to an acceptable level.

The third key point is investment. To attract fresh investment into this highly capital-intensive sector, conducive power and tariff policies are essential. It is also important to implement the provisions of the Electricity Act on open access so that the generators and consumers can get linked to drastically reduce the transaction costs and, in turn, the cost of supply.

Fuel constitutes about 60 per cent of the cost of generation. The main fuels for electricity generation are coal and gas. These sectors while being monopolistic in character are not regulated. We have often witnessed unilateral and repeated fuel price increases, which affects the viability of the generating stations. In the interest of the common consumer, regulation of the fuel supply sector is highly required. Contemplation of dual pricing of natural gas for core sectors and non-core sectors is a welcome step.

V. Raghuraman
The top three priorities of the government should be energy market reforms and a stable fuel policy based on economic rationale, levy of user charges and transparent policies for subsidy management, and rural electrification.

Mohit Saraf
Restructuring power utilities to make them commercially viable: It is estimated that the accumulated losses of the SEBs have increased from Rs. 45 billion in 1991-92 to Rs. 350 billion last year and the combined dues of the CPSUs and other government departments have crossed Rs. 450 billion. Given the enormous amounts involved, it may not be possible for the union or state governments to bail out the SEBs. Since the majority of activities related to distribution and transmission are undertaken by the SEBs, restructuring of these SEBs is necessary to enable them to provide reliable and cost-effective power supply.

Phasing out of cross-subsidies: Although the act mandates a gradual phasing out of cross-subsidies, none of the state governments has shown signs of doing so. Phasing out of cross-subsidies is an essential step in creating a market with better quality electricity where the pricing is freely regulated by market forces.

Open access: Non-discriminatory open access is one of the most important preconditions for promoting competition and choice in the sector. Constant augmentation in transmission capacity along with quality of transmission infrastructure is vital for making such non-discriminatory open access a reality.

T.N. Thakur
One, carry the restructuring process to its logical conclusion. This would entail reduction in governmental control of utilities, restructuring of utilities on agreed lines, reduction in the size of government-held entities to check market dominance and allow greater competition.

Two, take up programmes towards making an integrated national grid a reality. Recent evidence has shown that the existing transmission capacity creates bottlenecks in the balanced movement of surplus power to deficit regions. The resultant low utilization of generation assets and denial of productive consumption is a net loss to market participants.

Three, in all-out emphasis on rural electrification. Distributed generation and supply may have a major role to play here, with the use of renewable sources of power, and incentives to organization for providing this to the rural areas.

Ravi Uppal
First, there should be an emphasis on improvement of the distribution system, development of a reliable transmission grid and reforms at the state level. Development of the national grid, addressing grid reliability and system efficiency are the key priority areas that need to be addressed. Distribution system improvements and reduction in T&D losses are top priorities. Automation and IT leverage must be encouraged to bring greater control and grid efficiency, for example, SCADA, billing systems and remote metering. The APDRP is yielding results and these efforts should be intensified. Corporatisation of SEBs is another key step to ensure viability. And privatization can bring a greater sense of urgency, as we have seen in Delhi.

Second, the Electricity Act, 2003 should be implemented in letter and spirit, as it introduces many key elements of sectoral reforms like unshackling power generation, power trading, competition and tariff rationalization.

Third, efforts should be made to add significant generation capacity. In this, the government can focus more on hydel power. The private sector should be encouraged to help augment thermal capacity by making it financially attractive (through tax breaks and other incentives). Capacity can also be supplemented by captive power, especially in “waste-heat generation” sectors such as steel, where industries could set up capacity for their own needs and wheel the surplus to the grid.

What measures do you think will bolster investor appetite in the sector?

P.N. Bhandari
Given the precarious financial position of the SEBs, the lenders are not very comfortable to enter into PPAs with them. It would thus be better if the SEBs are bypassed. NTPC should invite bids for power purchase from private parties. With its financial strength, it would be literally flooded with offers of generation projects. NTPC can use the additional power to take up trading in a big way.

Direct privatization in distribution has been an agonizingly slow process. The Orissa privatization experiment has virtually failed. Even after so many years there has been no further addition in privatization, except in Delhi. Very few companies are evincing interest in privatization of distribution and they too are not very enthusiastic about the rural areas. Against this background, it may be desirable to go in for backdoor privatization. Further expansion, whether in transmission or distribution, should come in the private sector. In Rajasthan, we had planned to take up all further construction of 220 KV, 132 KV and 33 KV grid stations through the private sector on a build-own-operate maintain (BOOM) basis. Under this model, the utilities can go in for huge expansion without incurring substantial expenses because they have to only pay rentals for the grid stations. In transmission projects also, similar collaboration with the private sector can be attempted.

For agricultural connections, I had introduced an out-of-turn scheme called Nursery Scheme. The initial capital cost was 10 times higher and the tariff was cent per cent higher. Despite this, since the waiting period was so long, the scheme was a huge success. Tariffs could be doubled on their voluntarily opting for the Nursery Scheme.

Anjan Ghosh
With the enabling environment that has been created with the passage of the Electricity Act, 2003, investor appetite has shown an increase, as reflected in quite a few IPPs attaining financial closure in the recent past. With opportunities available for power trading and direct sales to bulk consumers, generating projects which can offer competitive tariffs need not be constrained by the credit risk of the SEBs.

However, on the distribution front, attracting investments is totally dependent on the initiatives taken by the state governments. Even without outright privatization of the distribution circles, states can attempt to invite private participation through the distribution franchisee model and/or by allowing multiple distribution licensees in circles with attractive load characteristics. Framing of multi-year tariff principles will also help reduce regulatory uncertainty in the sector and attract investments.

C.P. Jain
What is required is forward-looking and conducive power and tariff policies. The policies should provide long-term certainty in terms of policy and tariff to enable the investors to properly assess the viability of their investment over the investment life cycle and mitigate their perceived risks. The policy should balance the interests of the investor and the consumer. Affordability has to be looked into from the perspective of both the supplier and the buyer. The consumers’ interest lies not in getting cheaper power, but in getting adequate and quality power at reasonable rates.

V. Raghuraman
Some of the measures needed are:

• sanctity of contracts – prospective and not retrospective measures,

• environment of regulatory certainty and multi-year tariff framework,

• distribution reforms, and

• tariff levels that ensure internal resource generation and reasonably attractive returns.

Mohit Saraf
Removal of regulatory uncertainty, especially with regard to captive generation and third-party sales, can significantly bolster investments. More and more industries and consumers are looking to set up captive plants and sell electricity to third parties. However, except for regulatory commissions like MERC, most of the others have not cleared the regulatory uncertainty in the sector.

Establishing integrated transmission networks across the country holds the potential to promote the industry in a significant way. With an integrated transmission network, it is possible to bridge the gap between demand and supply from electricity-surplus areas to deficit areas. Open access to transmission networks is a necessary precondition for increasing investment in the electricity sector. Open access will also promote trading of electricity and, therefore, increase investment in the trading segment.

T.N. Thakur
The fundamental problem of the power sector arises from the present retail pricing system; the fact that too little is actually paid for by the user. Of the total electricity generated, only 55 per cent is billed and 41 per cent is regularly paid for. Electricity is either stolen, not billed, or bills are not paid. Under-pricing is also a problem, as current retail prices of electricity represent less than 75 per cent of the real average costs. This has created a serious impediment to investments.

The idea of sanctity of contracts or making counter-parties stick to enforceable agreements needs to be accepted as a core work ethic. Of course, the caveat is that a one-sided deal will always lead to one party reneging on its contractual obligations. To an extent, the central issue is the evolution of a mature commercial culture.

Financing of generation and transmission projects will require innovative structures, both institutional and financial. The idea of financing merchant capacity needs major acceptance in the investing and lending community, as this would be a significant focus area in a competitive market environment. A number of cross-border projects in Nepal and Bhutan would also require similar attention, as they can be developed for serving the Indian market.

Ravi Uppal
De-politicising the sector and putting the country’s interests first are vital for developing the power industry. Ensuring financial viability, tariff rationalization and incentives will also help. Private participation should be encouraged in generation and distribution, including power trading. State governments should act responsibly, resist populist measures and follow the union government line to accelerate reforms. One the whole, we must give the right signals.