More power to their elbow

The ordinance to set up within three months a Central Electricity Regulatory Commission and various State Electricity Regulatory Commissions...

The ordinance to set up within three months a Central Electricity Regulatory Commission and various State Electricity Regulatory Commissions to decide power tariffs sets the stage for overdue reforms whose absence has long stifled growth in the crucial power sector. It is public knowledge that the pathetic state of state electricity board SEB finances because of heavy subsidisation and poor collections is at the heart of this sector8217;s languishing performance.

The new package takes bold steps in a number of directions, not least the move by the government to curtail its own freedom to interfere. It has stipulated that the CERC chairman may only be removed after explaining to the Supreme Court the reasons why this was being done. It could be debated whether the Supreme Court is quite the relevant authority, but the action does inspire faith in the government8217;s resolve not to leave room for political manipulation.

Aside from that, the most radical step is the decision not to sell power to the SEBs throughcentral generating stations unless the SEBs open letters of credit to pay for their purchases within two months. This naturally makes it incumbent upon the SEBs to put their own house in order. The other side of the coin has been sought to be addressed by making it mandatory for the SEBs to charge at least 50 per cent of the cost of supplying power. This may not be as bold as could have been wished for, but it is a good beginning.

It certainly is to be hoped that a better match between the costs of supply and recovery will subsequently be effected and subsidies gradually lowered. An unnecessary exception has been made in the case of farmers by directing that SEBs must charge farmers a tariff at least 50 per cent of the cost only three years from now. The government has admitted that this had to be done because of opposition from the states. But just as it is healthy to lower cross-subsidisation between different consumers, as is now being attempted, so it is to make subsidisation of power supply to the farmsector transparent. If state governments wish to subsidise them, let them start paying a direct subsidy to the generating companies rather than allow a hundred inefficiencies to persist in the system and discourage further investments in it. Finally, the importance of introducing transparency in the bidding process for large power projects cannot be stressed too much.

The delays in the clearance of so many so-called fast-track power projects have been caused precisely by the lack of clear and simple guidelines, and India has witnessed hugely time-consuming and costly controversies about them. How clear and simple these prove to be remains to be seen, but it is scarcely in question that such guidelines are needed.

The attempt to score political brownie points by Power Minister P.R. Kumaramangalam may be apparent in his criticism of the previous government for ignoring the public-sector power infrastructure while wooing private investments. But his analysis is right that public-sector reform has to happenbefore private companies bite the bait, no matter how much the government may want them to invest. With the present ordinance and a Bill to follow, private investors8217; confidence should be boosted and the government need not delay aggressively courting them in a sector so crucial to growth.