Opinion | It’s time to look for permanent solutions to fix an ailing sector2 min read . Updated: 11 Sep 2019, 12:28 AM IST
You cannot have a situation wherein you don’t pay for what you contract for
Last few years have been reasonably hectic for the renewable industry in India, with the Indian government solidly backing its growth. The intention of the government to promote renewables is fairly evident from the commitment made by our Prime Minister Narendra Modi, at various international forums.
In the last few months, fault lines have started developing in the renewable capacity development program of India with various issues coming to surface, including bids not getting fully subscribed, negotiations after transparent bidding process, and bidders’ discomfort with the ceiling tariffs in a bidding process. However, what seems to have become the last straw, is the state of Andhra Pradesh’s call for renegotiation of already concluded PPAs. Of course, an issue of major concern for international investors and for the Indian government’s ambitious renewable energy programme over the next decade.
But, is it just Andhra’s decision that has created the issue that is faced by the industry as a whole or is it some larger issue? I would like to reflect back to the 90s when many of the so called ‘fast track projects’ were being implemented by the international developers including the likes of Enron, AES, and National Power. One of the main requirements of these international developers was a sovereign guarantee by the Indian Government. But why?
Exactly because of the same issue that we are faced today in the context of Andhra—almost bankrupt distribution utilities. Over years, investors have learnt to live with that risk by accepting the state distribution company risk. There is a sense of false balance in the system that payments will happen—may be with delays.
With Andhra episode, the time has come to call a spade a spade. As a fact of the matter, there is not enough money with the distribution companies to meet all their expenses—be it on power purchase, fuel purchase, maintenance, or for employee salaries.
Now, you cannot have a situation where you invite investors and don’t pay for what you contract for. So, where does the buck stop?
Multiple times in the past, the central government has stepped in and has tried to fix the ailing power sector; with probably the first by Montek Singh Ahluwalia-led Expert Committee on the one-time settlement of State Electricity Board Dues in 2001 and the latest being Ujwal DISCOM Assurance Yojana (UDAY) scheme of 2015. Indeed, an honest effort every time; but with very limited results, for a short time and then we are back to square one.
With the Andhra episode, probably the time has come, for the Central Government to take the bull by the horn. We cannot continue to have a situation where the consumers are not paying the full cost of the electricity.
The solution to this perennial issue can be twofold.
First, the distribution companies need to become only the network providers and the power should be supplied to retail consumers in small geographic areas by distribution franchisees, who will expectedly be more agile, commercial, and customer oriented.
Second part, which fits well in the larger scheme of promoting Indian manufacturing, is to reduce the cost of electricity for the large consumers, by providing them with freedom to choose their suppliers. In effect, implementation of the captive and open access provisions of the Electricity Act 2003.
Time for the real restructuring and not just a book entry.
Sanjeev Aggarwal is founder and MD of Amplus Energy Solutions Pvt. Ltd. The views expressed are personal.