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New Power Sector Policies - From Crisis to Disaster By Er. Prabir Purkayasta  Print  EmailInstead of providing adequate resources, the government offered a large number of concessions for attracting foreign capital into the sector. The major initiatives taken were with regards to fast tract projects. liquid fuel based power stations, and now unbundling and privatisation. The fast track projects were through negotiated Memorandum of Understandings (MOU)- the MOU- route-for setting up power stations with independent Power Producers( IPPs). Eight such IPPs were identified and concessions given such as * 16 % guaranteed return on capital with further incentives pushing it up to 32% * Increased depreciation of 8.24% from 3.5% allowed originally.
* A two part tariff, allowing a capital servicing charge plus an operating cost * Option to import fuel. * Guaranteed off-take much higher than the average load demand in the country. Exemption from income tax for five years. * Lower import duties. The argument offered was all this will help bring in additional resources and provide more efficient power stations. A stock taking of the IPP route and fast track projects will show that it has failed completely. The three fast-track projects that have come on-line have taken more than 7 years to start. As the Enron case has shown, the cost of such IPP power is bankrupting the SEBs. The capital costs have been grossly inflated for these projects and most of the capital costs have been met from loans advanced by public financial institutions. The foreign exchange outflows are 30 times the inflows. Thus, none of the premises of the policy for promotion of IPP projects have been fulfilled. Instead, viable boards such as MSEB have been rendered bankrupt by imposing Enron like projects on them . It is instructive that in the same period that the Government was focusing on IPPs, National Thermal Power Station (NTPC) has added 10,000 MW, all of it without any budgetary support. The second initiative was to go in for naphtha or liquid fuel as the fuel for power stations. It was planned to add 12,000 MW through the liquid fuel route in contradiction to the then existing fuel policy of promoting only indigenous coal based projects. The sharp rise in price of oil in the international market has shown how short sighted and dangerous this policy was. The cost of naphtha today is such that to produce one unit of power, the cost of naphtha required is more than Rs.3.00. SEB Finances: In a NutcrackerCurrently, the finances of the State Electricity Boards (SEBs) are in complete shambles.The report of the Expert Group headed by Montek Singh Ahluwalia, set up to address this issue has suggested " a one time settlement" along with " a commitment to initiate the process of reforms". The underlying assumption of the report is that reforming the power sector means privatisation of the SEBs. The electricity bill being introduced in this session of the Parliament has also the same objectives in mind. One of the problems in privatising the electricity sector is deciding which entity takes over the accumulated losses of the existing SEBs. One of the reasons cited for the failure of reforms in Orissa was that the State owned Gridco was burdened with virtually the entire past losses of the OSEB after which it never was going to be viable. The state-owned Gridco carried this burden so that the distribution and generation parts of OSEB could be made more attractive to private bidders. The distribution companies are collecting revenue but not paying Gridco, while Gridco has to shell out the full amount to the generators/The state-owned Gridco is thus getting deeper into the red, a classic case of privatising profits and nationalising losses. The Montek Singh Report therefore seeks to address one of the key problems of privatising the SEBs. For power, coal, freight, etc., the SEBs owe about Rs. 25,000 crore as principal to the Central Public Section Undertaking ( CPSUs) and another Rs. 15,000 crore as interest and surcharges. Obviously, if this amount can be deleted from the balance sheet of the SEBs, it would remove "one of the major impendiments to reform" (read privatisation). The report suggests that the principal amount and half of the accumulated interest be converted into tax free bonds worth about Rs. 35,000 crore. In other words, the sate governments should take over almost all the past dues of the SEBs. They would get a grace period of five years before repayments begin. It is important to know how the SEBs got into the current financial mess in the first place. Montek Singh and his experts carefully avoid this question, as this would need the examination of the impact of the last decade of reforms on the finances of the SEBs. The dominant view today is that the state governments are giving power away free to agriculture and are also run very inefficiently. This however, fails to explain why the SEB losses have ballooned so dramatically only in the last decade. Search KSEBOA.ORG |
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