Piyush Goyal thinking ahead of World Bank on Power Sector Reforms

File photo of a thermal power plant.

Piyush Goyal, the Minister of State for Power in the Narendra Modi led Government, has brought a sense of misison and purpose to reforming a sector that has been beset with several challenges. Mr. Goyal made news within few days of his assuming office when he was up all night to deal with a power crisis in Delhi struck by thunderstorms.  He has since come across as one of the most reform oriented Ministers in the Modi Cabinet based on his recent media statements and the talk of him bringing on board reformists like former Power Minister Suresh Prabhu to advise on much needed reforms in the sector.

Power Sector reforms in India have been the subject of much debate in recent weeks. A recent study conducted by World Bank says power distribution in India needs immediate attention along with sweeping reforms if the country has to attain the desired growth rate by meeting its surging energy demands. At present, India’s annual per capita power sector consumption is at around 800 kWh is among the lowest levels in the world.

The report further highlights a vital point that the distribution segment, which is largely run and owned by the Government will require regular attention of the authorities if sector performance is to improve. Power sector debt reached Rs 3.5 trillion (US$77 billion)—five per cent of national GDP—in 2011. The study also calls to free utilities and regulators from every sort of Government interference and pricing alongwith collection systems need modification. If one goes by this report then, it is a Herculean task for the Narendra Modi Government to provide electricity to each and every citizen of this country by 2019.

The power sector is struggling because of several reasons, including laxity in governance, a soft regulatory board, tariffs, which have not been kept up with costs, power theft, unfunded mandates and pervasive political interference. The study says that though there is improvement since 1991 which made India world’s fifth-largest power system, yet the country remains home to the world’s largest un-electrified population.

Other factors which have regularly hampered power distribution include bad management, poor operations and maintenance, procurement and nil recruitment. The service providers are pressurised or forced to not to raise tariffs and supply power to agricultural and rural consumers at extremely low cost. Moreover, physical distribution losses are extremely high, with almost one-fifth of power supplied not being paid for.

The 12th Five Year Plan projections show that even if tariffs are increased by six per cent every year to keep pace with rising supply costs, annual losses in 2017 could reach about Rs 1,253 billion (US$27 billion). However, these losses are financed by heavy borrowing.  In 2011 alone, the sector’s total debt reached Rs 3.5 trillion (US$77 billion) which was nearly five percent of nation’s GDP.  The study points out that the continued flow of funds from lenders to “insolvent distribution companies” through 2011 reduced their willingness to make urgently-needed performance improvements.

The World Bank report findings state that while India has made huge strides as far as generation and transmission of electricity is concerned, but the distribution segment, where revenues originate, has seen mounting debts and continuing losses, affecting the entire value chain.

 

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