Creating a healthy power sector

Published: December 29, 2019

A healthy power sector is the need of the country to help India realise the dream of being amongst the developed countries. Though all the three segments of the power sector which includes generation, transmission and distribution are important, it is the distribution sector which needs to be the strongest in the value chain. Operational and financial shortcomings in distribution have lead to bailout out by the Central Government for the whole sector. The government is now planning to launch the Aditya scheme – Atal distribution transformation yojana, which seeks to incentivise states to involve private places for improving efficiency of state discoms.

Most of the developed nations have adopted privatisation whereas in India, the distribution sector continues to be dominated by state run discoms with a limited private sector presence. India can have mixed models to introduce competition in the sector benefiting consumers via better delivery of services and reliable power supply.

Exploring options

A model which can be explored is the public private partnership mode , which can be seen in the case of Delhi. Delhi achieved reduction in aggregate technical and commercial losses with a reliable supply of power to consumers. This model has resulted in new connections being instantly released, AT&C losses have reduced from 53% to 8% in 2003. The Delhi government has been able to save Rs. 30000 crore since 2002 against annual losses of Rs. 1200 crore prior privatisation.

Another model which has been adopted by some states is a quick fix with the aim to reduce loss is the input based distribution franchise. Here, the bids are invited on the basis of per unit input rate which the bidder looks to pay for the license. The bidder who quotes the highest input rate is declared the winner. Though this model has some deficiencies as it does not provide any incentive to the franchise for invest in improving reliability of power supply and reliable delivery of services. It also does not have the capability to optimise additional power requirement to meet consumer demands. In addition there is limited regulatory oversight and the entire focus is on realising short term commercial gains via better collection and billing. There is a need to look at hybrid distribution models.

States can look at various options under hybrid models. While it could be continuation of specific areas and handing over existent license to franchise or can look at retaining only distribution part, while handing out entire spectrum of retail services to different franchises.
While different models can be adopted, the long term measure is to ensure a PPP model. This model has a better regulatory oversight and encourages capital investment. It is important to harness the ability of private players to invest capital into the sector. Both central and state government need to check on the fact that continuation of schemes is not the solution and a robust framework is required to provide world class services to the people.

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