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Mounting power losses

Mounting power losses

Losses incurred by state-run electricity companies are nothing new. By every passing year, the loss figure keeps on increasing. By 2014-15, these losses will touch the Rs1.16 trillion mark. These are the wages of missing power sector reforms that no one wants to do anything about.

As reported in Mint on Friday, losses will jump from Rs68,643 crore this year to at least Rs1 trillion by 2014-15. In theory, there is time to prevent this bleeding of power utilities. But it is unlikely that anything substantial can, or will, be done. One reason for this abysmal state of affairs is that power sector reforms lie in the domain of state governments. Unlike reforms in, say, the financial sector that are to be carried out by the Union government, the problem in this area is dispersed among many governments.

State governments on their part are loath to do anything. They don’t want to increase or rationalize power tariffs beyond a point. Politically “sensitive" consumers such as farmers can’t be touched. This adds to the losses incurred at the distribution end of the business. At the same time, the loss-making entities cannot be privatized. The state electricity boards are formidable blocks of political power. At best, the state governments can “corporatize" them by unbundling these boards into power generation, transmission and distribution firms. But that only delays the reckoning for a later day: What this does is to create three problems instead of one.

As the Mint story highlighted, the problem exists mainly at the transmission and distribution (T&D) end. There are technological fixes to transmission losses. But that requires investment, something that state governments have few resources for. Private sector investment is not an option here as state governments don’t want to privatize these companies. So until the political problem is sorted out, the losses will continue to mount.

The only area where some investment is taking place is the generation business. But bottlenecks on the T&D side will ensure that investors shy away from this side too. For, in the end, unless generation companies get their money from T&D companies, they will continue to be saddled with losses. Permitting competition in generation while blocking it in T&D is to make nonsense of power sector reforms. At the moment, this is the “model" that state governments are following.

Are power sector reforms dead in India? Tell us at views@livemint.com

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