Committee for financial discipline in power utilities

Sanjay Jog / Mumbai November 02, 2011

The 12th Plan screening committee on the power sector is unanimous in its view that the viability of the distribution companies is at stake. It has sensed an urgent need to primarily focus on loss reduction, enforce financial discipline in state-run power distribution companies and revise the tariff of distribution utilities.

A meeting of the panel, which was attended by power secretary Uma Shankar and heads of several distribution utilities besides Planning Commission members and officials, noted that the utilities would not be in a position to procure power. Reason: want of funds. The conclave, yesterday, noted that this was despite capacity addition of the proposed 1 lakh mega watt in 12th Plan, half of which is done by the private sector.

An official, who was present at the meeting, later said the state regulatory commission needed to do tariff revision during the current fiscal as well as during 2012-13 and 2013-14. “This is not enough, but it will help get the much needed liquidity for distribution utilities,” he told Business Standard. “The banks and financial institutions have also raised alarm over the present state of affairs. It will hamper the servicing of loans if the power producers is unable to recover from the distribution utilities — they are bleeding.”

The official informed that one of the options considered was the state treating the financial liability of the government-owned distribution companies as “deficit”. This would help in the purpose of enforcing fiscal discipline. “However, states may not agree to this considering pressure on their finances,” he noted.

Further, the participants emphasised the need for liquidation of regulatory assets with carrying costs. “There is an urgent need for empowering the state electricity regulatory commissions to enforce their orders,” according to a head of the state-owned distribution utility. “The plight of the regulators is that the absence of deterrent powers can make ineffective the action against non-compliance of their orders. This would be especially so in relation to non-payment of subsidy by the state government,” he said on condition of anonymity. “Moreover, there was unanimity that the non-performance of the distribution companies should be dis-incentivised and penalised.”

The power ministry reiterated that the cumulative losses as per the balance sheet of the distribution companies up to 2008-09 were of the order of Rs 75,000 crore. They are expected to increase to a level of Rs 1,15,000 crore based on current tariff and without subsidy, it added.