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Indian Power Sector should enter the next phase of reform, Shri R V Shahi, Former Secretary, Ministry of Power

The first generation reform in the Indian power sector started, in true sense of the term, with the enactment of Electricity Act 2003, though it would be technically correct to say that theoretically the power sector reform commenced from 1991. Unfortunately, since the approach was flawed, the whole reform initiative achieved little results. The series of legislative and policy initiatives undertaken during the Tenth Plan brought the required response and vibrancy in the power sector. It would, however, be wrong to say that we have achieved what we needed and what we should have achieved. The modest success delivered through the various policy instruments has been able to attract substantial public and private sector investments. To sustain these and to further scale up, we need to be doing many more things.

Second Generation Reform in the Power Sector should cover the following:


We must ensure full implementation of the Electricity Act, National Electricity Policy, Tariff Policy and other important policy instruments. Important pending issues include reorganization of the remaining Electricity Boards, Open Access in Distribution, minimising cross subsidy in terms of Tariff Policy etc.

(ii) We need to interact with industry to get them to participate in bringing about larger competition in electricity sector. Multiple Distribution Licensees in the same area of supply to bring better and efficient technology and to offer options to consumers could transform the shape of this industry. The relevant provision of Electricity Act, in this regard, has remained untouched in implementation.

Open Access in Distribution, mandatory from January 2009, has, in effect, remained highly restricted in actual implementation. If the element of cross subsidy surcharge and a less than required supporting environment at the State level are standing in the way, we need to get over these through persuasions. If this approach does not work, even the Act may be amended.

(iv) Section 11 of the Electricity Act has been interpreted by couple of States in a manner that negates the very objective of developing electricity market. If required, the provision may be suitably amended so that any likely interpretation against the spirit of the Act is adequately addressed.
(v) Tariff Policy has adequately highlighted the advance effect of "Free Power". But, a few States have resorted to this. If a State wants to help certain needy consumers, there should be more transparent way of providing targeted subsidy. Even if this requires a provision in Electricity Act, the same could be considered, though I do feel that this could be done through other administrative actions.
(vi) Delhi Model of Distribution has been finally vindicated. We need to encourage more of the cities and towns to adapt this model so that financial burden on State due to high losses could be avoided after going through a transition of a few years. More than one company in the same city does provide a competitive pressure on these companies to improve performance and quality of service.
(vii) Bhiwandi Model of Franchisee has also demonstrated its success. If not privatization, the Franchisee Model could be implemented in all such towns where the Distribution utilities have not succeeded in reducing the loss below 25%. There are large number of such towns in the country, may be more than 500, where such a situation exists. If this is not done, it is unlikely that financial health of the sector, in many States, will improve.
(viii) Franchisee in rural area is a requirement of the Rajeev Gandhi Grameen Vidyutikaran Yojna (RGGVY). It is not being implemented in most cases, as required under the Policy. States not implementing this in letter and spirit may have to be denied the benefit under the Scheme.
(ix) In spite of large capacity additions, it is quite likely that rural India will continue to be subjected to usual load shedding. Decentralised Distributed Generation, as provided under the Rural Electrification Policy (2005), of the Government of India, is a practical solution to this problem. However, this will need to be facilitated by the Government of India, in close coordination with State Governments, in the same manner as was done for Ultra Mega Project.
(x) In Transmission Sector, involvement of private sector has to increase, as has happened in case of generation. Somewhat more imaginative and supportive actions by Government of India and State Governments will be needed for this. We need to recognize that Merchant Plants, Captive Plants, and projects being developed to respond to Case 1 Bidding, can transform the competitive character of this industry. But, a robust and reliable Transmission Network, more than adequate in capacity, will be needed.
(xi) Regulatory Institutions have a major role in transforming this sector. A few developments, here and there, in past few years, do give reasons for concern. Selection, accountability, transparency, particularly in view of multiplicity of Electricity Regulators (in all States), are areas which will need to be kept under watch for appropriate and timely correctives.
(xii) Government owned power companies, when brought into the equity capital market, during 2003-2007, for the first time, have shown that not only adequate fund could be generated for their expansions, but also there would be qualitative changes in the management and governance. This initiative needs to be extended to power companies controlled by the State Governments.
(xiii) 50,000 MW Hydroelectric Initiative, launched in 2003, did make a visible difference. The process, however, is slow in implementation. Better coordination with State Governments is required. We need to launch another 50,000 MW Initiative to cover the remaining projects.
(xiv) Energy Efficiency and Demand Side Management, launched through Bureau of Energy Efficiency, set up in 2002, have made significant impact. These need to be scaled up, particularly at State Government level, with focused attention and accelerated targets.
(xv) Bilateral cooperation in power sector could create a win-win situation for the countries in this region. Hydro potential of Bhutan, when tapped in the form of a few hydroelectric projects, has proved to be of immense value to both India and Bhutan. Cooperation with Nepal, India, Myanmar could lead to unlocking these potentials for mutual benefits of all. Country-to-country Transmission Links would lead to optimal use of energy.

Power sector reform initiatives, in order to deliver desired results, need to be backed up with commensurate reform movements in the related sectors, particularly fuel. Efforts of Power Ministry have led to right movements in the manufacturing sector. BHEL has expanded, is expanding further, and many other manufacturing facilities for power plant equipment are coming up. These should lead to India having a domestic manufacturing capacity of the order of 25,000 MW per year in next two to three years. However, movements in the coal sector need to be particularly initiated and implemented. Liberalisation of Captive Power Policy has been in the right direction. What is needed is further opening up of the coal sector.

(xvii) Development of power sector is dependant heavily on the approach which is adopted by the environmental regulatory systems. If they take a pragmatic view, without adversely affecting the environment, substantial progress could be made. However, if the view and approach become too conservative and too unfriendly, it can jeopardise the whole growth of the Indian power sector, in turn leading to a serious set back for India's ambition to achieve a double digit economic growth rate.