Weak distribution segment affects the overall performance of the Indian power sector post reforms, with the sector finances set to deteriorate further by the end of 2017, the World Bank Group report titled ‘More Power to India: The Challenge of Distribution’ pointed out.
Two major bailouts, one in 2001, of Rs.350 billion, and another in 2012, of Rs.1.9 trillion are evidence of the poor financial performance of the sector, Sheoli Pargal, World Bank Economic Advisor, who authored the report told at a press conference organised to release the report.
Despite impressive achievements in physical infrastructure, the sector outcome remains disappointing, the peak deficit is exceeding eight per cent for 12 states 20 years after liberalisation, the report compiled between 2011 and 2013 said.
For 17 states, Aggregate Technical and Commercial losses are above 25 per cent, the highest being in Uttar Pradesh, Bihar, Jharkhand, Orissa and North-Eastern states.
Tariff revisions are not commensurate with increase in costs, which, coupled with system inefficiencies, contribute to losses. Only half the states achieved cost recovery in 2011, noted Ms. Pargal.
Around 70 per cent of the sector’s accumulated losses in 2013 came from Uttar Pradesh, Rajasthan, Tamil Nadu, and Haryana, with UP alone accounting for 27 per cent.
Growing subsidies and inadequate infusion by the state governments are stated as prominent reasons for the poor status of the utilities. Total subsidies booked were Rs.2.2 trillion, concentrated in A.P., Rajasthan, Punjab, Haryana, Uttar Pradesh, Tamil Nadu, Jharkhand, the opportunity cost of which could have supported 15,000 hospitals and 1.23 lakh schools, the report claimed.
However, these do not include industrial subsidies, but only agricultural subsidies and power purchase costs. Citing uneven implementation of reforms, domination of utility boards by state governments, and variations in autonomy, capacity, and transparency of SERCs as other reasons, the report recommended commercialisation of the utilities-- whether private or state-owned-- as the ultimate solution.
Utilities of A.P, West Bengal, Kerala, Gujarat, and Delhi are said to be performing well, and privatisation is not the only adaptable model, Ms. Pargal said. The full report is available at http://documents.worldbank.org/curated/en/2014/06/1970335
