Concerned with losses in power transmission and distribution, the government plans to set up a national fund aimed at tackling the issue.
“It is the poor state of transmission and distribution that is a drag on the (power) sector. The details of the scheme will be worked out and announced very soon,” said finance minister P. Chidambaram in his Budget speech.
While Chidambaram didn’t elaborate, Mint had reported on 31 January that the government plans to set up a national electricity fund that will raise money to help state electricity boards by providing them loans at low rates of interest to improve the state of their finances and, through this, reduce distribution losses.
Though the government already has in place the Accelerated Power Development and Reforms Project, or APDRP, for upgrading the distribution system, minimizing transmission and distribution losses, improving metering and assigning responsibility for realization of user charges, 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.
Lost in transmission: A Power Transmission Grid at the outskirt of Muzaffarnagar in Uttar Pradesh. (Rajeev Dabral / Mint)
“The creation of the fund will bring in a paradigm shift in the distribution process,” said Anil Razdan, union power secretary. “We were earlier focusing on the generation sector. The focus has now shifted to the transmission and distribution sector.”
While India’s power generation capacity is being enhanced, from 140,000MW to around 213,000MW by 2012, inefficiencies in power transmission and distribution are hurting the sector.
At Rs6,075 crore, the total allocation for the power ministry in 2008-09 has been increased by 37.5% over the revised estimates of 2007-08. The budget data, however, revealed that the revised estimates for 2007-08, Rs4,417 crore were lower than the actual allocation for the ministry in 2006-07.
R.P. Singh, chairman and managing director, Power Grid Corp. of India (PGCIL), India’s largest power transmission utility said: “This fund will create the need for further strengthening the national grid at a faster pace.”
The Centre has proposed an outlay of Rs1.4 trillion to build a national power transmission grid that will more than double the transmission capacity in the country to 37,150MW by 2012. Analysts say that the new fund’s success will depend upon whether it will be linked to target and performance and whether there would be effective monitoring.
“This fund, if properly structured, can be used to strengthen the transmission and distribution network at the state level,” said Kuljit Singh, partner at accounting and consulting firm Ernst and Young.
The budget has also allocated Rs800 crore and Rs5,500 crore in 2008-09 for APDRP and Rajiv Gandhi Grameen Vidyutikaran Yojana, the government’s rural electrification programme, respectively.
Analysts also say that the increase in service tax on all works contracts to 4% of the value, from the current level of 2%, will affect the power equipment contractors.
In another development, though the government has reduced the customs duty on project imports from 7.5% to 5%, the finance minister has withdrawn the 4% additional customs duty exemption from power generation projects (other than mega projects), transmission and distribution projects.
J. Sridharan, director, finance at PGCIL said: “Withdrawal of custom duty exemption, also known as special additional duty, will not be much as its effect, to a larger extent, will be cancelled by reduction of custom duty. There will only be a marginal relief to the sector.”