India’s renewed attempt to revive power sector reforms, promoted by the Planning Commission, will not fly as state governments are rejecting the proposal that requires them to provide sovereign guarantee to the Rs1 trillion loans that state electricity utilities, in both transmission and distribution, will have to raise from financial institutions to move the needle.
Power shortages due to limited capacity and growing electricity theft have been identified as one of the key infrastructure bottlenecks threatening India’s ability to sustain the 9% per annum growth rate recorded in the last two years.
Earlier, the Planning Commission had rejected a model, proposed by the Union power ministry, under which the Centre would provide Rs51,000 crore in loans directly to state electricity utilities to finance investments badly needed for the sector’s reforms. If the utilities do adhere to the specified benchmarks, the loans owed to the Centre will be converted into grants for the respective state governments.
About 40% of power generated in India continues to be lost due to theft and pilferage
Taken together, the divisions in government have put the brakes on India’s power sector reforms, even as 40% of every 10 units of power generated in India continues to be lost due to theft and pilferage. The country has an installed capacity of 141,000MW at present.
As a result, the ruling United Progressive Alliance has not been able to come up with a fresh programme ever since the accelerated power development reforms programme, or APDRP, lapsed a year ago.
“We are not in favour of the loans given under APDRP as gross budgetary support from the government, as argued by the power ministry. We want the state utilities to raise finances on their own from financial institutions such as Rural Electrification Corp. Ltd and Power Finance Corp. Ltd, for which the state government’s should give sovereign guarantees,” said a Planning Commission official, who didn’t want to be identified.
Others in the government, however, do not agree.
“The project has already been delayed. While the Planning Commission wants the states to give this guarantee, the question to be asked is whether the states are in the position to do so. The states’ finances are in a bad shape and this will play havoc, as if they give this guarantee, they will not be able to take any more loans for their other programmes. They also have to adhere to fiscal responsibility and budget management (FRBM),” said a power ministry official, who also didn’t want to be identified.
FRBM was legislated in 2003 to enforce fiscal discipline, make liabilities transparent and avoid transferring bills for current expenses to the next generation, and most states have adopted it.
However, contrary to the power ministry’s claim, the fiscal situation of the 29 state governments, taken together, has vastly improved and, in fact, they are actually poised to collect more revenues than what they are projected to spend in the current fiscal year (2007-08).
APDRP was created for upgrading the distribution system, minimizing transmission and distribution losses, improving metering, and assigning responsibility for realization of user charges. However, it has grossly underperformed as it has not been able to bring down the losses to 15% by the end of 2007 as originally targeted in 2000-01, when the programme commenced.
Power sector officials of Tamil Nadu, Andhra Pradesh, Bihar and Karnataka, who didn’t want to be identified, say that since states have other work commitments for which resources have to be raised, giving sovereign guarantees is not the way forward.
“The Planning Commission is absolutely right. APDRP is a questionable investment today even though it is the flagship programme of the government. The ways that the funds have been utilized need to be revisited. Providing grant funds is a counter measure as the power sector is an economic sector rather than a social sector. Grant funding is fine for rural electrification, but not for this,” said Shubhranshu Patnaik, an executive director at audit and consulting firm PricewaterhouseCoopers.