New Delhi: Government think-tank NITI Ayog’s chief executive Amitabh Kant on Wednesday pitched for market pricing of electricity and transferring power subsidy to the bank accounts of poor consumers as part of radical reforms needed to cut power theft and make affordable energy available for a globally competitive manufacturing industry.
At a conference in New Delhi organized by the India Energy Forum, an industry organization, Kant said introduction of direct benefits transfer (DBT) along with other steps like privatization of all the state-owned power distribution firms and having independent state electricity regulators were the bold reform measures needed to turn around the struggling electricity distribution sector. Direct bank transfer of entitlements is already in place for cooking fuel.
At present, individual power consumers are cross-subsidized by industrial and commercial establishments, the higher power tariff for which adds to their cost of doing business and reduces competitiveness in the world market.
“About 79% of our manufacturing output comes from small and medium enterprises. Availability of affordable and reliable energy on a sustained basis is essential for them to plan for the size and scale required to penetrate world markets. No country has benefited from strong manufacturing growth for long periods on the back of domestic market alone,” said Kant. He added that it was the manufacturing sector, more than services, that has helped other nations to record long periods of economic growth. Services accounts for about 65% of India’s gross domestic product.
“Health of the energy sector is critical in attracting investments. Radical restructuring (of the sector) is necessary,” said Kant, adding that the government which pulled off a mammoth and unprecedented move like demonetisation of large denomination currency notes, was capable of bold reform measures.
Power distribution utilities have been the weakest link in the energy value chain, plagued by power theft, billing inefficiency and regulatory delays in approving tariff increases, which together made them one of the worst loan defaulters in the economy.
“In the name of load management, power distribution companies shy away from procuring power, which makes the generation companies run their plants at low capacity, impacting their loan repayments. If distribution companies are to turn around, there is a need for continuous improvement in operational efficiency and continuous revision in power tariff,” said Ashok Haldia, managing director and chief executive officer of PTC India Financial Services Ltd, a power sector lender.
According to Anil Razdan, former Union power secretary, health of the power sector directly impacts that of the financial sector as 70-80% of the funds invested in any new power project are from financial institutions. “Outstanding bank credit to power sector as on September 30, 2016 was Rs5.3 trillion. Power sector’s share in gross non-performing assets (NPAs) is almost 6% compared to 14% for the entire infrastructure sector,” said Razdan, quoting Reserve Bank of India figures. He argued that it was crucial to enable power generation companies to run plants at full capacity so that they can produce affordable power and service their debt.