Barring very few, state government-owned power utilities are largely
known by their execrable performance and the brisk pace at which
they are moving towards financial morass. Erstwhile electricity
boards of most state governments were always infamous for their highest
standards of inefficiencies. This made way for trifurcation of electricity
boards with the noble intention of bringing about efficiency, through the
creation of independent entities for generation, transmission and
distribution. A state electricity regulatory commission was put in place as
a quasi-judicial body with regulatory powers, for matters relating to power
tariff. Even as all this has been done, there is not much progress in terms
of state utilities, mainly the distribution companies, improving their
financial health.
The V.K. Shunglu Committee on State Electricity Boards, appointed in
August last year, has come out with startling observations and harsh
recommendations. While several observations are very common
knowledge, it will be interesting to see what recommendations will be
implemented towards achieving financial parity in state power distribution
utilities. Aggregate losses of state power utilities have more than doubled to
nearly
70,000 crore in FY11. At the same time, capital expenditure
programmes are continuing unabated, precariously increasing the
exposure of lending agencies to state utilities.
Undoubtedly, the biggest source of financial losses to state utilities has
been under-recoveries. The gap between cost of procurement and
realization is widening by the day. The committee reveals that several state
government distribution utilities have failed to effect any increase in tariffs
even as the Electricity Act mandates an annual tariff revision. In states like
Tamil Nadu, there has been no revision in tariff for over seven years, it is
learnt. The committee has reportedly recommended that non-performing
electricity regulatory commissions be wound up.
Under-recovery has been a debilitating phenomenon, not only in the power
sector, but even in the case of petroleum products like LPG, petrol and
diesel. In the case of power utilities, even if annual tariff revisions were
implemented, leading to gradual reduction in financial losses, a one-time
bailout package appears inevitable.
Putting state electricity distribution companies on track is the biggest
agenda in India's power sector reforms process. No effort must be spared
in achieving this, even if it involves stern measures. Privatisation of
distribution circles, which has brought dramatic improvement wherever
implemented, must be pursued stoically.
Power shortages are bound to mitigate in the years to come, thanks to a
healthy stream of power generation assets coming on line. What will
govern the financial viability of the power sector is a vigilant control on
technical and commercial losses. Technical losses can be plugged
through engineering solutions which are available, but checking
commercial losses needs tremendous political will, which is unfortunately
unavailable—at least at the moment.