Recent power sector reforms

Date: July 22, 2016

S&P World Bank ADB

Considered to be the backbone of any economy, India’s power sector has never witnessed reforms as it has in the past two years. Not that reforms in the power sector were not talked about in the past but they somehow failed to take flight and remained just that- a collection of perfectly placed words on paper.

Global Agencies Laud Power Reforms

Today, the reforms in the power sector are being recognised by global agencies be it the World Bank or the ADB or for that matter international rating agencies like the Standard & Poor (S&P) or Fitch. During a recent visit, the group president of the World Bank, Jim Yong Kim congratulated the government for its reform initiatives and announced over $one billion support for India’s solar power projects.

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Two years back the power sector was an area of top concern with the domestic as well as international funding and rating agencies. Yet here we are two years later, talking about the very same power sector and those very same agencies but with a difference. A difference of leadership and vision. One, which has replaced all questions and concerns with an optimistic outlook.

However this task wasn’t easy. It took a great deal of new reforms and initiatives which is what we must examine in detail.

Until 2014, the country’s entire focus was on power generation without similar work being done on the transmission and distribution side. And even with the focus on generation, fuel scarcity -- both coal and gas --led to investments and projects getting stranded and bank finances getting stuck. Banks were unwilling to lend and investors did not want to invest in the power sector. Depleting financial health of state distribution companies resulted in poor offtake of power thus leading to massive power outages across the country. To put it simply, the power sector was in chaos.

When the NDA government assumed power, it came to terms with the actual hay wire state of the power sector. However, the Power ministry soon swung into action and announced sure shot initiatives to stabilise the tumbling power sector.

The first such initiatives, was announcing a few flagship programs like the 24x7 Power For All plan. The road wasn’t smooth. The first hurdle came their way when they realised that most of India’s state distribution companies (DISCOMS) that purchase electricity from generators, were facing massive financial issues and were unable to either procure sufficient power for the customers they serve or upgrade their age old distribution networks that needed modernisation.

The outstanding debt of Discoms was estimated to have increased from Rs 2.4 lakh crore in 2011-12 to about Rs 4.3 lakh crore in 2014-15, with interest rates up to 14-15%. It was also estimated that DISCOMS suffer a loss of over Rs 60,000 crore every year. Therefore, for the 24x7 affordable ‘Power for All’ mission to reach its potential, the first and foremost task was to set right these DISCOMS –identified as the weakest link in the entire power value chain.

At the same time, it was also realised that with power being a concurrent subject, no scheme could be forced upon any State and had to be an optional one. But at the same time if it is made lucrative enough, it will see active participation of the States.

This led to the launch of UDAY or the Ujwal DISCOM Assurance Yojana for the financial and operational turnaround of the State Distribution Companies in November 2015. UDAY provides the ailing Discoms with a clear roadmap and opportunity to become profitable in the next 3 years.

Presently, despite the scheme being an optional one, as many as 20 States have given their consent to join of which, 13 States, viz, Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand, Punjab, Bihar, Haryana, Gujarat, Uttarakhand, Karnataka, Goa, Jammu & Kashmir and Andhra Pradesh have already signed MOUs with the Central Government.

In the year 2015-16, Bonds worth Rs. 99,541 crore were floated by the participating States to clear 50% of the outstanding debt of States and outstanding CPSU dues in Jharkhand and Jammu & Kashmir. Further, DISCOM Bonds worth Rs. 11,524 crore were floated. In the year 2016-17, Bonds worth Rs. 48,391 crore have been floated by Rajasthan, Uttar Pradesh and Punjab.

With this, financially and operationally healthy DISCOMs would be in a position to supply more power. Higher demand for power would mean lesser cost per unit of electricity which would again mean lesser cost per unit of electricity to the consumers.

While it will take a while to witness the results of the UDAY scheme, the government is simultaneously seen fixing fuel shortages to revive the stranded gas-based plants. Banks have also been approached to pitch in towards the equity of these plants to revive them.

Energy Efficiency Measures

The story of reforms initiated by the government would be incomplete if one did not touch upon the success of energy efficiency measures. As energy saved is energy generated, the unassuming strides that have been made by this government through energy efficiency measures is anybody’s guess.

The state-owned Energy Efficiency Services Ltd (EESL) that did around 6 lakh LED bulbs a year is today doing close to Rs 8 lakh bulbs a day—a record of sorts by any standards. ‘Affordable LEDs for All' programme, being led by EESL, involves replacement of incandescent lamps/CFL bulbs with LED bulbs to save energy and reduce the bills of customers.

Empowering Rural Areas

Another innovative scheme of this government has been the distribution of SIM enabled mobile phone connected smart energy efficient agricultural pumps to farmers and replacing the age old agricultural pumps.

These smart agri pumps give Indian farmers the advantage to sit in the comfort of their homes and operate pumps through mobile phones. Distribution of energy efficient fans, tube lights and Air conditioners are some other initiatives by EESL.

Empowering its people especially those staying in the rural belts has been recognised as the topmost priority by the Prime Minister. In his address to nation on Independence Day, PM announced a plan to electrify the remaining 18,452 unelectrified villages of India within 1000 days i.e. by 01st May, 2018. Power Ministry has decided to take this project on mission mode and put in place a strategy for electrification of villages almost a year ahead of the deadline set by the PM.
Today, 8,681 villages have already been electrified till date (3rd July, 2016) and out of remaining 9,771 villages, 479 villages are uninhabited, 6,241 villages are to be electrified through grid, 2,727 villages to be electrified through off- grid where grid solutions are out of reach due to geographical barriers and 324 villages are to be electrified by State Govt own. In order to expedite the progress further, a close monitoring is being done through Gram Vidyut Abhiyanta (GVA) and various actions are also being taken with the state Discom, identifying the villages where milestone progress are delayed.