Energising POWER

Investors' sentiments about the Indian power sector have significantly improved in recent years, with the Central government showing its resolve to open up the industry for private competition by moving ahead with the operationalisation of the key provisions of the Electricity Act, 2003. This is reflected in the enthusiastic response received from private players to the bidding held for the selection of the ultra mega power projects. However, the states are still dragging their feet on implementing measures to unshackle their power distribution sector from pricing distortion and policy anomalies, threatening to nullify the central government's efforts to turn the Indian power scenario around.

Due to the slow pace of reforms by the states, most of the electricity boards (SEBs) are unable to generate enough revenue to cover the cost of electricity procurement and remain heavily dependent on subsidy payouts by state governments to stay afloat.

The gross subsidy burden of the states has been constantly rising. It is projected to reach Rs 46,087 crore in this financial year. According to latest statistics compiled by the Union power ministry, subsidy accounts for as much as 25 per cent of the SEBs' revenues in most of the states. Already reeling under resource crunch, most of the states are unable to bear the entire subsidy burden, forcing the SEBs to carry over a big chunk as losses.

The Electricity Act - which came into effect in June 2003 - provides a framework for comprehensive reform of the Indian power sector. It has led to delicensing of power generation, decontrol of captive generation, recognition of electricity trading as an independent business operation and open access in transmission and distribution.

But, although guidelines for implementation of these reform measures have been notified, full-fledged operationalisation of stipulated reforms like open access is being held due to lack of cooperation from the states.

The states are putting in conditions to allow open access for transmission of power outside their boundaries, says Bhanu Bhushan, member, Central Electricity Regulatory Commission (CERC). It is because they do not want surplus power from captive power plants within their jurisdiction to go to other states, he adds.

CERC is trying to resolve key issues impeding operationalisation of open access with state electricity regulatory commissions (SERCs). To this effect, a mechanism, Forum of Regulators, has been put in place. The CERC chairman holds meetings on a regular basis with SERCs for consultation through this platform.

The Act stipulates measures like unbundling of electricity boards for separation of generation, transmission and distribution business and phase-out of cross subsidy, constitution of SERC to supervise fixation of tariff for power plants and electricity wheeling charges and setting up of special courts for trial of power theft cases by the states.

Of these, the provisions for mandatory unbundling of SEBs and elimination of cross-subsidy have proved most contentious in the face of strong opposition from trade unions like the Electricity Employees Federation of India (EEFI). The trade unions have opposed implementation of these provisions on apprehension that it might lead to retrenchment of SEB employees on a large scale.

The states were required to completely unbundle SEBs by June 10, 2004, and also to take measures to move towards elimination of cross-subsidy in a time-bound manner. But many states expressed difficulties in unbundling SEBs and approached the Union power ministry for extension of the deadline. The Manmohan Singh-led United Progressive Alliance (UPA) that came into power in May 2004 agreed to extend the deadline pending emergence of a broader consensus over further power reforms.