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Shri P. Umashankar, Former Power Secretary, Government Of India

05 Nov 2015

Timely tariff increase key to UDAY’s success.

P Umashankar, former Power Secretary, GOI, answers a range of issues facing the power sector today and what the government needs to do to make the UDAY scheme a success. Excerpts.

What is your outlook on India’s power sector today with respect to the investment climate considering that the sector has been plagued in the past by issues relating to fuel supply, land acquisition, and project delays?

Power sector in the country has been plagued in the last few years by fuel supply and financial distress of distribution companies, leading to lower utilisation of commissioned power generating capacities and difficulties in debt service. Fuel supply has been addressed to an extent in that domestic coal production/supply has been looking up and price of imported coal has been coming down substantially and continually. However, all this is barely sufficient to feed existing capacities. Linkages for new capacities have not been given for the last 5 years and will not be given, i expect, for some more time. New generation capacities will be planned only when new linkages are available. It is too early then to expect any investment in generation. But, transmission is doing fairly well and is likely to do so. Bids are likely to be called for a few lines estimated to cost about 12,000 crore. GoI is said to be planning an investment of Rs 1 lakh crore in transmission.

Besides, for investment sentiment to improve, the financial distress of discoms needs to be addressed and discoms will have to be mandated to supply 24/7 reliable quality power and not resort to load shedding. With the announcement of UDAY, visible changes in the financials of discoms may be seen in a few years. With the joint initiative of GoI and States for ‘24/7 Power for All’, States/discoms may buy adequate power to meet the needs of the consumers. These two together may change the sentiment in the sector in a few years paving the way for greater investment.

The government recently launched Project UDAY, a comprehensive package for power sector reforms, to deal with the problems relating to discoms who are reeling under a debt burden of more than Rs 4 lakh crore. What is your take on the scheme? What are the challenges involved in its implementation and what are your suggestions to make it work better?

UDAY is in many ways like the Financial Restructuring Plan announced in 2012 but with some improvements. In FRP 2012, 50% of outstanding debt of discoms is to be taken over by states, while in UDAY, it is 75%. It has also been made easier for States to take over the debt by providing relaxation in FRBM caps. Discoms are to issue state guaranteed bonds against the remaining debt of 25% , whereas in FRP 12 the remaining debt was to be restructured/rescheduled. Both schemes have similar trajectories for AT&C loss reduction and making the gap between Average Revenue Realization(ARR) and Average Cost of Supply(ACS) zero.

One important difference between the two schemes is that GoI intends to monitor the targets/milestones under UDAY monthly. The second is the initiatives GoI intends to take to reduce cost of power by rationalising coal linkages, allowing swap of coal linkages so that distance coal travels is reduced and available coal is used in the most efficient plant, ensuring quality coal, ensuring supply of washed and crushed coal etc. These initiatives are likely to lead to reduction in cost of power which would make it easier for discoms to reduce the ARR-ACS gap. It remains to be seen if discoms/states will take the necessary steps to increase tariffs from time to time to make this happen and if they don’t what GoI does to force/persuade discoms/states to do so. The success of UDAY will depend on this. The proposed amendment to the National Tariff Policy to enable quarterly revision in tariffs to adjust for increase fuel prices will help. The proposed amendments to the Electricity Act 2003 envisage recovery of cost of supply without revenue deficit, mandatory application of tariff policy, pass through for fuel and power purchase costs, quicker disposal of tariff petitions and oversight of the performance of regulatory commissions. That will be a significant event and will come as a great boost to efforts to make discoms viable.

There has been a lot of talk on India’s energy strategy to meet its growth needs in the context of the ongoing COP 21 meet at Paris. How do you see India balancing its thermal and renewable energy requirements and what should be the right strategy as per you?

India will continue to depend on coal for meeting its energy needs for a few decades that cannot be avoided, despite the huge push the GoI has been giving to developing renewable energy. India has also been rightly stressing on developing clean coal technologies to reduce the negative impact of use of coal and energy efficiency to optimise energy consumption. Encouraging and incentivising super-critical technology for power generation and discouraging small less-efficient sub-critical plants have been part of India’s strategy for some years now. India also has plans to develop Advanced Ultra Super Critical Technology indigenously to further increase efficiency of coal to power conversion. Although ambitious plans were earlier announced for providing washed coal to power plants, not many washeries were set up. Hopefully, the recent initiatives to produce quality coal, washed and crushed coal etc will bear fruit. India has no option but to pursue coal based technologies for a few decades (alongside ambitious plans for renewable energy) but a lot of work remains to be done in making coal clean and international community will be keenly watching the efforts of India in this direction. To the same end, India should redouble its efforts to reduce AT&C losses, which will significantly reduce the carbon foot print.

It is however disappointing that not much attention is being paid to tapping a clean energy source which is available in plenty in India, namely, hydropower. One does not see announcement of any initiative in this regard. With an assessed potential of 150 GW, India has harnessed just 42 GW which is about 28%. And hydropower’s proportion in India’s installed power generation capacity is going down rapidly: from 46% in the seventies it has come down to 15% now. I would like to see a lot more efforts go into hydropower development.

India has pledged to increase share of non-fossil fuels in electricity generation to 40% by 2030. Do you see a significant role of nuclear sector in India in achieving the target? How can India increase power generation from nuclear?

Nuclear has not been easy to develop as it is and the difficulties have simply increased post Fukushima tragedy. India’s installed capacity of nuclear is a mere 5780 MW against the total installed capacity of 280 W. It has taken so long to achieve even this insignificant capacity. I don’t think much can be done by way of nuclear. We have to look at other options.

The Electricity (Amendment) Bill 2014 has generated lot of controversy. It is claimed that the amendments in electricity bill which seeks to segregate the power distribution network from electricity supply business is basically anti people and does not look at root cause of power sector ailments but only treat the symptoms of problems. What are your views?

I don’t think so. One of the fundamental tenets of the Electricity Act 2003 is to give consumer a choice as regard the provider from whom he/she wishes to take electricity. The proposal to separate carriage from content is to move along this direction. Admittedly, a lot of work needs to be done before this can be achieved. The work will also include addressing some of the sector ailments. But once achieved, it will provide choice to the consumer, generate competition among the service providers and lead to better quality of service, better price etc. We can see what benefits competition has brought to consumers in other sectors.

The government has planned an investment of more than Rs 1 lakh crore in the transmission sector. How can issues relating to transmission sector be resolved in your view?

A major issue in transmission is Right of Way. As major transmission lines pass through more than one state, the issue becomes more complex. Cooperation of states will be needed to ensure that these issues are resolved in time and the construction of the lines is not delayed for want of ROW. There a few states where this issue is more acute. GoI can reach out to these states to get their cooperation.