Business » Economy

Updated: February 26, 2011 02:25 IST

Power sector needs bold reforms

Special Correspondent
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With the power sector struggling to achieve the targets set in the XI Plan, the Economic Survey on Friday called for bold reforms in the power sector and asked the States to reduce subsidies and cross-subsidies on electricity and hike tariffs.

Stating that India had one of the highest transmission and distribution losses in the world at 35 per cent, the Survey, said India currently has one of the lowest and most uneconomical average electricity tariffs in the world — 8 cents per unit at the retail level, compared to about 12-15 cents in countries endowed with more coal or gas and 19-10 cents per unit elsewhere.

It called for end to monopoly of State Electricity Boards (SEBs) in power distribution by encouraging open sales of the bulk of power supply in the market, which would increase competition.

“The T&D losses are draining public revenues, forcing larger price increase requirements and causing massive losses to the State electricity boards, which is about 1 per cent of the GDP,” it said.

It stressed on the strong role of independent regulators to ensure adequate competition and act on uncompetitive behaviour in wholesale trade of electricity, including capping wholesale tariffs and investigating competition.

The Survey suggested three different ways to encourage open access or putting the bulk of power supply for sale in the market.

First, there could be a public-private partnership mode with open access, where long-term concessions were granted to private distribution companies.

Under this mode, which is very similar to what is being followed in the telecom sector, the tariff would be regulated and bulk consumers would be permitted to access the network. This would involve the bulk of power supply being put on sale in the market.

The second option was a distribution franchisee model where operators are selected through competitive bidding and ownership of the assets remained with the State power distribution company. In the third mode suggested, there could be a performance-based state distribution company where open access is allowed.

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