Sector Issues and Chief Ministers Conference presided over by Prime Minister
Monday, June 11, 2007
R. V. SHAHI
Finally the conference of
Chief Ministers to discuss power sector issues was held, at the initiative of
Union Power Minister, on 28th May 2007 under the chairmanship of Hon'ble Prime
Minister. This conference had, infact, been planned to be held in early January
2006, but could not be held in view of minister level change in the power
ministry around that time. Subsequently, because of many other reasons, it was
planned but could not be held, as the Hon'ble Prime Minster himself, during his
opening address on May 28th, mentioned "this is a conference which we have been
wanting to convene for sometime now". The issues of power sector are so complex
that for a real breakthrough in the much needed reform process at a pace, which
such a reform deserves, involvement of the State Governments, just at the
highest level, is essential. During last few years several meetings and
conferences were held at the level of Power Ministers and also at the level of
State Energy / Power Secretaries, and a number of issues were addressed. But,
there are a host of major issues which need definite direction and action to be
decided only at the level of Chief Ministers. Therefore, this conference was
overdue and it is highly satisfying that it was held.
The speech of the Hon'ble
Prime Minster was on expected lines. The PM made candid comments and, in many
cases, very strong observations. Of course, the PM has been so concerned about
the issues of power sector that, in last few years on different occasions -
foundation or inauguration of some power plants, launching of any programme of
the ministry of Power or his Independence Day speeches, many of his concerns
were reflected in one way of the other. In this conference, apart from
expression of concerns, the Prime Minster made several definite suggestions and
gave directions, many of which subsequently have also formed part of the
Resolution adopted at the conclusion of the conference.
The entire speech of the
PM is full of important observations. However some of them need to be
The power sector has
made good progress over the past few years. It has also seen very significant
changes. Utilities have been restructured. A solid regulatory foundation has
been laid. There is much greater public participation in tariff setting. Tariff
distortion has gone down.
But, we have not been
able to make a decisive break through in ensuring high and sustainable rates of
growth of this sector and improving its financial health.
The problem (of
shortages) has been intensified by poor progress in addition to generation
capacity, in cutting down losses and in reducing wasteful consumption.
The PM in his speech,
accorded the top most priority to the issue of transmission and distribution
losses and said that the current level of losses ranging between 30-45% in many
States threatens the financial health of this sector. No meaningful development
of power sector would be feasible with these levels of losses.
Honest consumers who
pay their electricity bills bear the burnt of the cost of theft by other
unscrupulous consumers. Theft is the cancer of the power sector. We need to come
heavily down on it.
We need to upgrade the
transmission and distribution system in a time bound manner.
The center will
support the initiative through a revised Accelerated Power Development & Reform
Programme (APDRP) scheme through which we will reward performing States by
converting loans into grants on achieving results.
We need a crash
programme for capacity addition aimed at eliminating shortages. Public sector
would have to generate fair amount of internal resources. This will have to be
supplemented by attracting sufficient private investment.
The key to attracting
investment, particularly form private sector, lies in ensuring open access to
consumers. It will encourage investment. It will also put competitive pressure
on the incumbent utility.
Lack of competition
result in inefficiency. An example of what competitive tariff based bidding can
achieve is the conscious decision to move away from cost plus tariff towards
competitive tariff in Ultra Mega Power Project, which has shown substantial
States need to
actively encourage bulk consumers to source their power from alternative
suppliers so as to increase the total availability of electricity in the system,
especially for the household and farm sector.
We have electrified
nearly 40,000 villages in last two years in comparison to just 10,000 villages
in the entire span of 9th Five year plan (1997-2002). We should continue to work
on this initiative on war footing and complete electrification of villages by
However, we need to
focus on developing appropriate revenue models for rural areas.
The Center cannot
become a votary of central power utilities and protector of their interest
alone. The Center must lead by example. For example, inter state transmission
needs to be truly opened up to competition and a separate independent entity to
control the National Load Dispatch Center should be considered.
We need to take hard
and immediate decisions and in this context we can hardly emphasize the need to
have a national mission on conservation of energy.
The discussion in the
Chief Ministers conference covered many issues but centered around the above
issues emphatically articulated by the Prime Minister. Finally the Resolution
adopted by the Chief Ministers conference has fully taken into account the
concerns and suggestions made by the Prime Minster. Some of the additional
points made by the P.M. in his closing remarks could be summarized as below:
It would be useful to
set up a permanent institutional arrangement consisting of the main Hydro power
generating States for a coordinated and balanced hydro power development. Power
Minster may set up a Task Force on this.
To promote open
access, the Power Ministry could consider linking a part of the unallocated
share of power to meaningful structural reforms, such as open access.
professionally managed National Power Project Management Board attached to the
Power Ministry to keep track of all projects which are to be completed in the
11th five year plan.
undertake a thorough review of present subsidies with the objective of targeting
these better and gradually moving towards a system of providing direct
Regulators should look
at the promotion of competition, efficiency, restructuring and investment.
Regulators are not supermen. They have to function strictly within the legal
frame work. If they don't take measures strictly in consonance with public
interest States and Ministry of Power should intervene decisively. Regulators
should regulate - but not over regulate.
The important highlights
of the Resolution, which was adopted, are as follows:
Targets for rural
electrification have to be met, to ensure that rural India has adequate access
The States should
develop appropriate revenue and franchisee models.
The Center & States
should ensure placement of orders by December 2007 for all projects intended to
give benefits during 11th Five year plan.
The Center would set
up a National Power Project Management Board for monitoring of timely
commissioning of power projects and transmission projects.
The States supported
the initiative of the Center to set up Ultra Mega Power Projects. The Center
would develop necessary transmission network for these projects.
The Government of
India would facilitate timely and adequate availability of coal and gas for
generating plants at reasonable and competitive prices within the existing legal
Capacity will be optimally utilized and no generating capacity would be left
recognized the open access and competition as important tools to improve the
supply position, help lower the tariff and attract much needed investment, and
resolved that the Center & the States should unshackle generation, transmission
and distribution to enhance the availability of electricity.
The Center & States
would issue any necessary policy directive to any undertaking or regulator to
this end in the interest of consumers.
States commit to
achieve drastic reduction in the overall AT&C losses through the next five years
and atleast to a level of 15% in the APDRP project areas.
Where free and
subsidized power is provided to a section of consumers, the State Govt. should
ensure upfront payment for the same to the utilities.
The States & the
Center would focus Demand Side Management measures and encourage bulk
procurement and distribution of CFL.
Follow Up Action
Analysis of the Prime
Minster's inaugural address, PM's closing remarks, address by the Union Power
Minister and the Resolution which was adopted, leads to the need for follow up
action on a number of items. In many cases the PM himself gave the time line.
Some of the issues which will need immediate attention are as follows:
Expeditious action on
hydro projects is an urgency. Setting up of a permanent institutional
arrangement for hydro power projects has been suggested by the PM in his closing
remarks. In view of a number of concerns raised by some of the North Eastern
States, particularly Arunachal Pradesh and the States of Uttrakhand and Himachal
the process of allotment of hydro power projects has been considerably delayed
leading to delays in preparation of Detailed Project Report and further action
of project construction.
bearing States have been voicing concerns and making demands about certain
benefits and concessions. States particularly like Chhattisgarh and Orissa have
been postponing giving their consent for setting up Ultra Mega Projects as also
other projects. This issue also needs urgent follow up and decision so that
there is clarity and action.
As a matter of fact,
both the issues, namely development of Hydro Projects and Coal Projects in coal
bearing States, could perhaps have been resolved in the CMs conference itself as
they have remained unresolved for almost two years leading to avoidable delays.
The Task Force to be set up by Union Power Minister, as suggested by the Prime
Minster, it is expected, would take this up on a priority basis.
The PM in his closing
remarks also suggested setting up of a dedicated, professionally managed
National Power Project Management Board attached to the Ministry of Power to
monitor progress of generation and transmission projects. This should start
functioning so that full advantage is taken right from the beginning of XI Plan.
Specified percentage of allocation of
unallocated power, maybe 50% of 15% could be linked to reform actions by the
States, for example restructuring of Board, facilitation of open access etc.
The PM gave a time line for announcement
of revised APDRP Schemes within two months. Since substantial work had been
done on the revised framework during the later part of 2006 itself, it could
be expected that revised scheme would be notified by July end.
States were advised by the PM himself
that special courts to deal with the cases of electricity theft should be
set up and operationalised soon. It could be expected that whenever it is
not done, they may be put in place in next 3-6 months.
electrification the PM committed the Central Government to a time bound
programme, to be completed by 2009, and suggested that if there were any
operational and cost issues these will be sorted out in next few weeks. It could
be expected, that with this, both Planning Commission & Finance Ministry would
draw a definite line of action so that there is no uncertainty about
availability of fund.
Setting up of Standing
Group of Power Ministers under the Chairmanship of Union Power Minister. This
would be a regular mechanism at the highest level.
Setting up of a Sub
committee of the Standing Group to look at the financing issues. The sub
committee would finish this work within three months as directed by the P.M.
PM, in the inaugural
speech, emphasized that inter state transmission line should be truly opened up
to competition. The Power Ministry, during 2006, set up an Empowered Committee.
Fourteen transmission projects were identified for selection of developers on
B-O-O basis through competitive bidding on tariff. The process is however slow.
Perhaps with PM's emphasis on this it would gain momentum.
On the whole the Chief
Ministers Conference was in a position to bring into focus almost all the
important issues, and the Resolution has spelt out time bound action programmes
on most of the major areas of concern. Since two issues namely clarity on hydro
project development and allocation of projects by States, and similarly
cooperation of coal bearing States in facilitating and enabling pit head power
projects could not be discussed in detail and concluded, perhaps they would be
resolved by the Standing Committee or Task Force soon. The issue of managing
subsidy and cross subsidy was spelt out by the Prime Minister himself by his
reiteration that if a State wants to subsidize it shall pay to the utility
upfront. This is infact, the provision of Electricity Act 2003. However, this
position is somewhat diluted from the0 National Electricity Policy and Tariff
Policy in which free power has been discouraged. Also the NDC committee on
Power, which submitted its report in 1993-94, had prescribed an approach towards
agricultural tariff, which meant 50 paise per KWHR in 1993-94 and by 1999 it
should have been 50% of cost of supply which means almost Rs. 1.50 per KWHR.
Through the PM had spoken on this issue on a number of occasions in the past, in
this conference this was not emphasized, perhaps because it had been reiterated
by the P.M. time and again earlier.
As regards the PM's
emphatic direction that there should be a separate National Load Dispatch Center
to control the power system operation, it may be relevant to mention that the
Committee of Secretaries, about a year ago, had deliberated this matter and
recommended setting up of the NLDC as an independent organization first as
subsidiary of Power Grid and subsequently to be separatedly from Power Grid.
Obviously the Power Ministry would take appropriate action in this regard.