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Bargaining power for reforms

Bargaining power for reforms
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First Published: Fri, Feb 08 2008. 12 42 AM IST
Updated: Fri, Feb 08 2008. 12 42 AM IST
Here’s a trade-off that needs to be thought through seriously. To what extent should Union government policies direct states to share their natural resources, be it minerals or hydel power sites, with those not endowed with these? The question spills into the domain of tax sops as well. How well is the Centre able to direct tax benefits in the power sector?
The immediate case is of the possible extension of the tax holiday for ultra mega power projects (UMPPs) and others from 2010 to 2017. The idea is to attract private investors and expand power generation capacity. It is being argued that the extension, if given in Budget 2008-09, will be because the few UMPPs that have been awarded are unlikely to begin operations on time?to?benefit?within?the?current deadline.
It’s true, tax holidays make bidding more competitive and lower tariffs—they lower the electricity bill of?purchasing states by?around 5%. But the question is: Are they strong enough drivers to improve the pace of power reforms in the purchasing states? Second, even among the bunch of purchasing states, there is no merit order in allocation of power from UMMPs—in terms of their reform orientation. But the fundamental hurdle stopping more private investors entering the business of generation is the poor financial health and payment capacities of the state electricity boards or utilities—their main buyers of electricity.
By extending the holiday, the government would be perpetuating a lax, non-responsive and discriminatory tax regime. The least it can do is to, in return for the cheaper power, bind the purchasing states to improve the viability of their utilities by investing in transmission and distribution equipment, efficient metering for monitoring of supply, billing and in checking power theft. Else these states would be encouraged to continue providing free power to farmers and burden the non-farm segment with higher tariffs in the process as well.
Underlying these myopic decisions is a larger Centre-state issue. Electricity is a concurrent subject. And distribution is largely in the states’ domain—perhaps that’s why reforms?have?been conveniently?directed at?generation by the Centre right since the 1990s.
(Are such policy decisions ensuring the larger interest? Write to us at views@livemint.com)
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First Published: Fri, Feb 08 2008. 12 42 AM IST
More Topics: Tax holiday | Power | Electricity | Reforms | Views |