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WB releases report on India's power sector reforms - State govts need to pay subsidies when they mandate free power supply

June 26, 2014



World Bank has released a report on power sector reforms in India. The report titled More Power to India: The Challenge of Distribution was released in New Delhi.

The report was made on the basis of study conducted at the request of the Government of India. The report reviews Indian power sector across key areas of access, utility performance, and financial sustainability. It identified electricity distribution to the end consumer as the weak link in the sector. The report recommended freeing utilities and regulators from external interference, increasing accountability, and enhancing competition in the sector in order to move it to a higher level of service delivery.

India's annual per capita power sector consumption at around 800 kWh is among the lowest levels in the world. Total accumulated losses in the power sector stood at 1.14 trillion rupees in 2011. These losses are overwhelmingly concentrated among distribution companies (discoms) and bundled utilities - State Electricity Boards (SEBs) and the State Power Departments.

Due to accumulated losses, the power sector debt reached 3.5 trillion rupees in 2011, as much as 5% of India's GDP. Over 60% of the sector's accumulated losses in 2011 came from the states of Uttar Pradesh, Madhya Pradesh, Tamil Nadu, and Jharkhand. Uttar Pradesh alone accounted for 40% of the sector's accumulated losses. While grid connectivity has increased, over 200 million people without power live in electrified villages. It takes seven procedures and 67 days to get a power connection for a commercial establishment in India. In China it takes 28 days, in Thailand 35, and in Singapore 36 days.

In 2010 some 87% of the domestic electricity supplied India-wide was subsidized. Over half of subsidy payments (52%) India-wide went to the richest 40% of households in the country in 2010. Factors responsible for increasing losses in the power sector are: the cost to discoms of purchasing power has risen faster than revenues; fuel shortages and the need for expensive fuel imports by generators and generation inefficiencies; rising interest expenses and tariffs not keeping pace with costs over the years; under-collection of bills and delayed collection of payments and more than one-fifth of electricity purchased being collectively lost by the utilities

Power distribution in India needs sweeping reforms, if it is to bring back the country to a high growth trajectory and meet its goal of expanding access to electricity to all by 2019. The key recommendations given by the report are: state governments should pay subsidies transparently, fully, and on time, when they mandate free power supply. State governments must also improve the targeting of subsidies so resources are not wasted and actually reach the poor. Utilities must be freed from government interference and their management professionalized. Despite corporatization, utility boards remain state-dominated and are rarely evaluated on performance.

Banks/lenders should hold utilities accountable for efficient operation and not lend to those that are not credit-worthy. Regulators should transparently revise tariffs in line with efficient costs, hold utilities to service standards, and create a predictable environment for decision-making. Consumers need to pay for the power they use, and hold regulators and state governments accountable for quality of power they supply. Union government should pledge no future bailouts, give regulators autonomy and adequate resources, and hold them accountable for their performance. Union government should also allow competition to create pressure for efficient operation, and promote rural access to electricity in a financially responsible manner.


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Source: Pakistan Press International


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