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States power sector losses on the rise

Mar 3, 2000

In a presentation by ICICI to the power ministry, the power sector of all states put together have reported operating losses of Rs 123 bn in FY99, and this is expected to go upto Rs 1,700 bn by FY2012. It states that further delays in carrying out power reforms will lead to higher cost escalations in the power sector in future. The power dues from the states to central power supplying units is expected to go up from the present level of Rs 230 bn to Rs 1,500 bn by 2005. As there will be marginal capacity additions in the state sector, the share of the state sector will fall from 59% currently to 40% by 2012.

Independent Power Producers (IPPs) have not taken off as yet as they are dependant on State Electricity Boards (SEBs) who have poor financial strength. Of the total projects awarded to the private sector with a total capacity of 75,000 MW so far the private promoters are able to tie-up for only 18,000 MW. The overall power shortfall is expected to go upto 46,000 MW in 2012.

Hence it is important to speed up the power sector reforms by unbundling of state electricity boards by dividing the functions of generation, distribution and transmission into different entities. The states who have taken this seriously are Orissa with its newly formed distribution companies and Uttar Pradesh State Electricity Board (UPSEB) who has succeeded in trifurcating the functions into three separate entities inspite of a strike by workers and political pressures. The other state governments who also plan to unbundle their SEBs are Maharashtra and Gujarat. The remaining other states however need to be encouraged to do the same.

The government needs to speed up power sector reforms by giving sops to the transmission and distribution sector by granting them infrastructure status, encouraging both foreign and domestic players in the private sector and rationalising the fuel duty structure for power companies. As transmission and distribution losses currently stand at 21% for SEBs, it is necessary to bring them down to international levels by encouraging private players in this segment.

The transmission and distribution losses and under-utilisation of capacity has resulted in high cost of power to the consumers and industrial sector. This in turn increases the cost of production of the Indian industrial sector vis--vis the international market.

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