Power Sector Reforms – A Retrospection

By Gopabandhu Mohapatra

During nineties, one of the major objectives of the privatization of distribution business was to run power sector in a viable, efficient and commercially sustainable manner. The power sector reform that Odisha undertaken was to supply electricity to the consumers under the most efficient conditions in term of quality and cost in order to support the economic development of the state.

Odisha was the first state to privatize distribution in 1999 by unbundling a loss-making Orissa State Electricity Board. The four distribution companies – NESCO, WESCO and SOUTHCO and CESCO – were privatized with US-based AES Transpower taking up majority shares in CESCO while BSES (Now Reliance Infra) got the three other Distribution Companies (discoms) after international bidding. The discoms were to buy power from Gridco, collect tariffs from the consumer and pay GRIDCO, which in turn had to pay the generating companies. The first setback to power reforms came in July 2001 when AES Transpower left CESCO unable to pay its power dues to GRIDCO. Now Orissa government manages CESCO and renamed it as CESU in 2006.

Electricity Act 2003 envisaged that with the setting up of independent regulators and distancing of government from tariff matters, the state distribution utilities would be able to achieve financial viability and there by restore the financial health of the power sector. It was expected that the private investor should be able to infuse capital to make necessary investment in network so as to reduce transmission and distribution loss.

Hence the very purpose of Electricity Act 2003 was to reduce the losses in Power sector, improve the financial health of the sector & reduce the subsidy burden of Government. But due to faulty execution of policies, the contrary has happened. It came a full circle when state power regulator Orissa Electricity Regulatory Commission revoked the distribution licenses of three power distribution companies i.e. NESCO, Southco and Wescounder section 19 of the Electricity Act for their gross failure in raising their performance and financial health, reducing distribution loss, preventing theft of energy and running the organization in a financially viable manner.

After more than two decades of power sector reforms in India, it has failed to ensure adequate supply of electricity in the country, bring down aggregate technical and commercial (AT&C) losses, make the power sector vibrant, viable and profitable, bring in the benefits of competition in power generation and distribution by way of reduced tariff and better consumer services.

The main reason is the total inability to realize costs from end users and reduce distribution loss by making necessary investment and initiating administrative reforms. Instead of reducing loss gradually over a period, the loss has remained more or less constant and in some years it has increased and thus there has been no improvement.

Energy losses are due to a combination of technical and non-technical issues like faulty metering, poor billing, inefficient collection and pilferage and theft. Poor metering, lack of investments in distribution networks resulting in overloaded feeders, ill-maintained sub-stations with aging transformers and other technical shortfalls are further amplified by inefficient billing and inadequate revenue collection as well as simply un-metered supply and wide spread electricity theft. The lack of consumer education in the rural sector, rampant political interference and inefficient electricity use, among other facts are affecting the already weakened power sector.

Commercial losses include theft (direct connection plus meter bypass, defective meter plus meter stopped and meter burnt plus wrong reading, reduce collection efficiency and meter tampering. State Government is mulling ways to recover a whooping Rs 7000 crore dues from consumers, mostly domestic, to streamline the power situation across the State.

To overcome this, Government should plug the holes and increase collection of revenue from various industries without showing any political favour. Besides the private and commercial consumers, industrial houses, urban local bodies (ULBs), government establishments and public sector undertakings (PSUs) have huge outstanding bills to pay. There are many stay orders due to Court cases against recovery of dues. Government is pursuing to find out ways to settle the matter through “out of the Court” settlements.

However, the over dependence on private sector for the reforms in power sector is not good for the country and the country needs a balanced approach.

(Mr. Gopabandhu Mohapatra is a retired banker and writes on a variety of subjects with a focus on Banking and Finance. He can be reached at [email protected])