FE Edirorial: Power to reform
The Financial Express
Posted online: Oct 05, 2009 at 2146 hrs

The criticism directed at Union power minister Sushil Shinde by finance minister Pranab Mukherjee over the poor performance of the power sector once again brings to the fore the slow pace of reforms in this crucial infrastructure. It is a problem that has enormous implications for an energy-starved country like India. The weak defence offered by the power minister, trying to shift the blame on inadequate gas and coal supplies, will cut no ice as the problems in the sector have continued to multiply under his tenure since the UPA-I government. Incremental policy changes like the new sops announced for mega power projects will only help at the margins. Power policy needs a sustained burst of ministerial energy.
Most recent estimates show that the funds availability of Rs 6.37 lakh crore for the power sector in the Eleventh Plan will still leave a gap of Rs 4.21 lakh crore. Institutional fund flows are now constrained by the prudential norms imposed on credit offered to different sectors and companies, while foreign investors shy away because of low returns. RBI norms prevent the use of external commercial borrowings for meeting rupee expenditures. Fund flows to the power sector will continue to be constrained as long as power policies refuse to address the distribution and market risks. This would require bringing down technical and commercial losses from the current level of 35% to around 15%. This means radical reforms in the distribution sector: privatisation, the separation of agriculture feeders from other lines and shifting to open access systems to increase competition. Introduction of differential peaking tariff and setting up of well-functioning wholesale electricity markets are crucial as well. Another major constraint that has to be tackled urgently is the non-availability of power generation machinery. Repeated efforts to step up supplies and competition have not succeeded. Chinese machines are not the answer always; there are quality issues. Tackling many of these issues requires active participation and coordination with states. States won’t be impressed by conferences or strictures. They need an effective incentive structure, something the central government has failed to produce. Clearly, there’s an incredible amount for the power minister to do and clearly, there isn’t much he’s getting done.