Low voltage

The Union power ministry appears committed to scuttling genuine and much-needed reform in the power sector. The new tariff policy proffered by the ministry is designed to kill competition and effective regulation in the sector. The policy apparently suggests a continuation of the cost-plus principle under which the power company gets an assured rate of return. In this framework, there is no incentive for the company to cut costs. When the company does not cut costs and the regulator makes sure that the higher prices are passed on to the consumer, the loser is the consumer. If this approach is pursued, there can be no doubt that India will move towards higher and higher power tariffs.

The other element of reform that is absolutely essential is to increase competition in the sector. For this it is necessary to unbundle the generation, transmission and distribution of power. This then allows the customer to buy power from any power generator. It creates competition among the suppliers and reduces prices. This becomes possible in what is called the “common carrier” principle. The transmission lines carry power for all power generators and for all distribution companies. It puts an end to the monopoly of one company that was generating, transmitting and distributing power and refusing to carry the power generated or distributed by any other company.

Fortunately, the power ministry’s proposals for a new tariff policy have been opposed by the ministry of finance, clause by clause. Solving the problems of the power sector requires unbundling, and the setting up sound ground rules for each of these sectors. The main tension lies in coping with the lobbying of state electricity boards which stand to gain from the power ministry’s proposals.