Electric haircut ahead PDF Print E-mail
Monday, 28 May 2012 00:00
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What’s the guarantee of power reforms this time?


With accumulated losses of around R2 lakh crore, it’s obvious state-owned power utilities are in no position to repay the R3 lakh crore or so they have borrowed from state-owned banks—around R65,000 crore or so of this has been restructured in just the last quarter. Which is why, the finance ministry is now working on the BK Chaturvedi recommendations and should be out with a final policy in the next few weeks. In broad terms, the recommendations are that half the loans be taken over by the state governments (half remain with the state-owned utilities) and that, subject to certain conditions, a 5-year interest moratorium be given to them—in the interim period, the hope is, tariffs will be raised, power losses will be curtailed … in short, a fairy-tale ending in which, after the states/utilities have repaid their loans to the banks, the Centre will grant them a one-time bonus as well. Apart from the regular hike, one condition is that a quarterly review be done to ensure any hike in fuel prices is passed on to customers. Since any extra loans taken on by the states will have an FRBM consequence, the next Finance Commission is to be asked to ratify this—and since there is to be a 5-year moratorium on interest payments, there will be no interest outgo from the states till the next Finance Commission comes in. On paper, you can’t have a better solution, so it’s expected an RBI nod may not be a problem—while banks may be reluctant to agree unless RBI allows to relax provisioning norms, the flip side is that if nothing is done, the loans have an even greater chance of going bad.

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%. Mind you, this is after a committee headed by Montek Singh Ahluwalia gave concessions worth R41,473 crore to state utilities in 2001, a centrally-funded Accelerated Power Development and Reform Program that linked reforms to grants from the Centre has been around for years (around 40% of energy consumed in India is covered by this programme!) and, concurrently, the World Bank has given several billion dollars of loans linked to power sector reforms. The finance ministry has to insist on more conditionalities if it has to give its assent to such a scheme—forcing privatisation has to be one of them.


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