Reform first, profit later PDF Print E-mail
Thursday, 19 July 2012 00:32
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Power losses mount despite several reform packages

Given there have been at least three reform packages for the power sector over the last decade, during which annual losses have more than quadrupled to R80,000 crore a year, it’s not quite clear what the government thinks has changed so much that things will be different this time around. Under the package the Cabinet is expected to clear in the next 2-3 weeks, around R1,20,000 crore of short-term loans of state-owned power utilities are to be restructured—while PSU banks and financial institutions will take a haircut on half the loans, state governments will issue bonds for the rest. Since the loans will have an FRBM consequence, there is to be a 5-year interest moratorium, enough time for the next Finance Commission to raise the bonds ceilings for the states. But what’s the guarantee states will raise tariffs this time around? The average tariff-to-cost ratio for power was 82.2 in 1992-93 before falling to 67.8% in 1999-00, and it then rose to 82.2 in 2006-07—that ratio has once again started falling and is today 78%.

After a committee headed by Montek Singh Ahluwalia gave sweeping concessions to state utilities in 2001, the government has had an Accelerated Power Development and Reform Programme (APDRP) and even a Restructured APDRP—while outlays for the programmes have been over R50,000 crore, the actual amount sanctioned has been under R15,000 crore, suggesting states don’t have much of an appetite for even moderate reforms. The fate of a few billion dollars lent out by the World Bank linked to similar reforms has been equally dismal. Since, under the scheme of things, states will get the bailout first and are asked to undertake reforms later, chances are the reforms won’t get carried out. Why not reverse the order? Privatise some distribution utilities and get an interest waiver of 2 years, reduce your losses by 5% and get a 1% interest cut, and so on … Otherwise, in 2022, we’ll be working on another reforms package 5-10 times the size of this one.


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