The Prime Minister’s call to push for power capacity addition in the country highlights just one aspect of what is required today. For instance, in the first quarter of this year, only one-third of the targeted of 3,807 megawatts (MW) has been added.
However, given the shortages, the targets are well justified and the rising power demand must be met by competitively priced electricity supply. Industry’s competitiveness will improve if it is assured adequate supply, else it will resort to setting up captive units that produce expensive electricity.
Having said that, merely accelerating the pace of power generation alone will not solve the power crisis. This is because most of the distribution utilities that purchase this electricity and distribute to the end consumers are in a financial mess. On average, they charge consumers less than what it costs to supply. At the end, the more the utilities sell, the more they lose.
Unfortunately, the pace of reforms is hardly adequate. The first signs of a crisis were felt a few months ago when banks and lending institutions such as Power Finance Corp. became wary of lending more money to the utilities. The situation eased after utilities raised consumer tariffs which, on average, had not been raised for several years. Importantly, it was more a knee-jerk reaction to the financial freeze rather than the initiative of the regulatory commissions that were supposed to make this happen at regular intervals so that tariffs were constantly aligned to costs. Several power regulators have succumbed to the wishes of the ruling state governments, their loyalties often born of the appointment process which is driven by the political class. The Union government should have a say in this appointment process.
This should be part of the conditions while offering financial assistance to the states in the power sector. Also, the efforts to reduce technical losses and curb thefts should be sharply defined and even-handed. For instance, if there is any reversal in the loss-reduction achievements, this should lead to financial disincentives for the states.
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