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Power Sector Issues and Chief Ministers Conference presided over by Prime Minister, Shri R V Shahi, Former Secretary, Ministry Of Power

Power 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 particularly highlighted.

  1. 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.

  2. 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.

  3. The problem (of shortages) has been intensified by poor progress in addition to generation capacity, in cutting down losses and in reducing wasteful consumption.

  4. 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.

  5. 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.

  6. We need to upgrade the transmission and distribution system in a time bound manner.

  7. 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.

  8. 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.

  9. 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.

  10. 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 tariff reductions.

  11. 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.

  12. 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 2009.

  13. However, we need to focus on developing appropriate revenue models for rural areas.

  14. 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.

  15. 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:

  1. 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.

  2. 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.

  3. A dedicated 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.

  4. States should undertake a thorough review of present subsidies with the objective of targeting these better and gradually moving towards a system of providing direct subsidies.

  5. 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 Resolution

The important highlights of the Resolution, which was adopted, are as follows:

  1. Targets for rural electrification have to be met, to ensure that rural India has adequate access to electricity.

  2. The States should develop appropriate revenue and franchisee models.

  3. The Center & States should ensure placement of orders by December 2007 for all projects intended to give benefits during 11th Five year plan.

  4. The Center would set up a National Power Project Management Board for monitoring of timely commissioning of power projects and transmission projects.

  5. 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.

  6. 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 framework.

  7. Captive Generation Capacity will be optimally utilized and no generating capacity would be left idle.

  8. The Conference 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.

  9. The Center & States would issue any necessary policy directive to any undertaking or regulator to this end in the interest of consumers.

  10. 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.

  11. 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.

  12. 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:

  1. 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.

  2. Similarly, Coal 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. On rural 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.

  9. 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.

  10. 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.

  11. 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.

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