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Home arrow Business News arrow CII calls for urgent Distribution Reforms to secure 24x7 Power for all
CII calls for urgent Distribution Reforms to secure 24x7 Power for all Print E-mail
Written by Viswanath   
Tuesday, 01 November 2011
New Delhi: The Confederation of Indian Industry (CII) has called for urgent reforms to secure 24x7 Power for all, as high power distribution losses are adversely impacting GDP growth. Power has a multiplier effect on the GDP. The dismal financial situation of the distribution sector (the cash generating segment of the power value chain) is threatening the viability of the country’s Power sector.

"The Financial loss has been estimated at 1.5% of the national GDP. This will act as a major deterrent to private as well as global investments in the sector," says Chandrajit Banerjee, Director General, CII.

The losses of State Electricity Boards (SEBs) at over a whopping Rs 100,000 crores as of 2009-10 account for a large proportion of the fiscal deficit and the subsidies budget of the state governments and are thus increasing the burden on State Finances.

“With the bulk of the additional capacity being financed on the basis of long term PPAs, the deteriorating financial position of (largely) state controlled utilities is a key concern and the ability of these utilities to fulfil these commitments should indeed be carefully evaluated,” says Sunil Wadhwa, Chairman, CII Core Group on Distribution Reforms and Smart Grids and Managing Director, New Delhi Power Limited.

CII has made several suggestions for reforming the distribution sector. One, the condition of Discoms can be improved by increased competition. This can be done through adoption of distribution franchisee route, increasing private competition or public private partnership models. The appropriate model can be adopted by the discoms on a case to case basis. 

Two, implementing ‘open access’ would provide electricity buyers the option to select their source of supply. High–paying industrial / commercial consumers can procure power directly from power generators or another SEB providing cheaper power. This would not only ensure uninterrupted power supply to the consumers, but it would also promote competition amongst SEB’s/generators.

While Gurgaon has a serious power shortage, neighbouring Delhi has surplus power. If industrial, commercial and residential complexes in Gurgaon (which are currently resorting to using the more expensive and polluting diesel) are allowed to take the open access route and to purchase power from Delhi, it will be a win win situation for both the buyer and the seller. While the distribution company will be able to sell its surplus power the consumers will have access to uninterrupted cheaper electricity.

Three, Electricity should be placed under the purview of the proposed Goods and Services Tax (GST). This will ensure that input tax credits can be availed which would to a certain extent balance the withdrawal of exemptions and concessions. Exemption from additional customs duty and service tax should be extended to all power projects.

Four, timely issuance of cost reflective tariffs, including introduction of Time of Day tariffs, needs to be introduced. In addition, creation of regulatory assets by deferment of cost reflective tariffs needs to be discouraged.

According to CII, the key issue that the SEBs are battling with are cost–tariff mismatches. While there have been no substantial tariff revisions in the past five or six years (States like Tamil Nadu raised tariffs after a gap of seven years), the Power procurement costs have risen sharply.

Most State Governments do not raise power tariff because it is a politically sensitive issue. The practice of cross subsidizing the agricultural and domestic consumers with other consumer segments such as industries and commercial units has in large part contributed to the deteriorating financial health of the SEBs. For instance, 23 per cent of the electricity supplied to the agricultural sector yields less than 6 per cent of the SEB revenues.

In addition, aggregate technical and commercial (ATC) losses at a national average of about 28 per cent have been described as “unsustainable” by the government and are also contributing to the SEB revenue losses. Combining theft and agricultural subsidy, on an average almost 40 per cent of the power generated has little or no cost recovery imposing burden on the remaining consumers.

CII recommends that the above steps should be implemented speedily to ensure the development of more competitive distribution markets.

 
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