Survey calls for major reforms in power sector

Calling for bold reforms in the power sector, the Economic Survey on Wednesday asked the states to reduce subsidies and cross-subsidies on electricity and hike tariffs.

The Survey tabled in Parliament today pointed out that India currently has one of the lowest and most uneconomical average electricity tariffs in the world -- 8 cents per unit at the retail level, compared to about 12-15 cents in countries endowed with more coal or gas and 19-10 cents per unit elsewhere.

It also suggested reducing the monopoly of state electricity boards (SEBs) in power distribution by encouraging open sales of the bulk of power supply in the market, which would increase competition.

It pointed out that the transmission and distribution losses in the power sector, at 35 per cent, were among the highest in the world.

"This (loss) is draining public revenues, forcing larger price increase requirements and causing massive losses to the state electricity boards, which is about 1 per cent of the Gross Domestic Product," it said.

It stressed on the strong role of independent regulators to ensure adequate competition and act on uncompetitive behaviour in wholesale trade (of electricity), including capping wholesale tariffs and investigating competition.

In view of the monopoly of SEBs in power distribution, with mounting losses and poor services, the survey suggested three different ways to encourage open access or putting the bulk of power supply for sale in the market.

Firstly, there could be a public-private partnership mode with open access, where long-term concessions were granted to private distribution companies. These firms would be required to make high investments and adhere to performance benchmarks.

Under this mode, which is very similar to what is being followed in the telecom sector, the tariff would be regulated and bulk consumers would be permitted to access the network.

This would involve the bulk of power supply being put on sale in the market.

The second option was a distribution franchisee model where operators are selected through competitive bidding and ownership of the assets remains with the state power distribution company. This mode is being adopted in Delhi.

In the third mode suggested by the survey, there could be a performance-based state distribution company where open access is allowed.