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Power: Privatisation benefits! - Views on News from Equitymaster
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  • Jun 29, 2004

    Power: Privatisation benefits!

    Power distribution business in India has suffered from a number of problems that have accumulated over the last fifty years. Problems include unfavorable user charge regime for some section of users, excessive T&D losses and distorted tariff policies. Recognizing the current state of the sector, a number of measures have been suggested. However, implementation has been poor and significant progress towards attainment of efficiency gains is yet to be made.

    Power distribution in India is a monopoly of the SEBs (state electricity boards) with very limited involvement of the private sector. Players like Tata Power, Reliance Energy and CERC represent barely 10% of the total power distributed and remaining 90% in covered by the government entities as on 31st March 2004. As a result, T&D (technical and distribution) losses are on the higher side (40% to 50%. Of this around 20% are technical and the remaining are commercial losses).

    The technical losses are due to the poor infrastructure (not enough transmission lines available), but the commercial losses are due to lack of political will to charge people for the power supplied. Just to win accolades some sections of the public, it has become fashionable among the state governments to distribute power at free of cost or at subsidised rates. The very fact that the major defaulters of SEBs include government departments and municipal undertakings shows that the state governments are financially distressed. In such a scenario, how can we expect the SEBs to receive their money on time for free power supplied?

    Of the 27 states that have signed MoAs (memorandum of association) with the government of India to undertake reforms, 11 states have been unbundled till now and the improvement witnessed is just outstanding. Just goes to show the benefits of de-regulation! Now the question that arises is why is privatisation of SEBs so important? The table below shows the results achieved during the last one year from these 11 states and will substantiate our view that further de-regulation is critical from the long-term perspective.

    (Rs bn) Before After Loss reduction
    Andhra Pradesh 29.4 18.8 -36.1%
    Assam 7.2 4.5 -37.5%
    Gujarat 42.7 27.2 -36.3%
    Madhya Pradesh 27.3 18.7 -31.5%
    Maharashtra 24.7 3.9 -84.2%
    Haryana 9.8 8.6 -12.2%
    Rajasthan 1.8 1.3 -27.8%
    Tamil Nadu 25.3 15.8 -37.5%
    Uttar Pradesh 24.5 18.5 -24.5%
    Uttranchal 9.7 1.0 -89.7%
    West Bengal 8.9 5.9 -33.7%
    Total 211.3 124.2 -41.2%

    Though there have been practical limitations in the implementation of the reforms, the most significant factor affecting the same has been the lack of political will. Needless to say, there is an urgent need for all the state governments to realise that if India wants to achieve 8% growth rate then power sector will have an important role to play. As rightly said by Mr. Jack Welch- "When you think of digitizing India, there will be a massive amount of power required and I pray to this government that you have to push and push and push to invest in infrastructure."



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