The Hindu : Power play

Online edition of India's National Newspaper
Wednesday, Mar 27, 2002

Opinion

Opinion - Editorials

Power play

AFTER A YEAR of discussions with the State Governments about their huge dues to central public sector power utilities, the Centre has finally decided to wield the stick by clearing a proposal that would offer the States the opportunity of a one-time settlement of these outstandings; those that turn down the offer face the prospect of a cut in Plan funds and even being cut off from power generated by the utilities. How the State Governments will react to the conditional offer will be known only at the National Development Council meetings. But considering that the root of the problem is the maladministration of the power sector in the States, the larger question is if this new initiative will only improve the finances of the central power utilities or will become a catalyst for overhaul of the State Electricity Boards.

The SEBs have over the years accumulated dues to the central utilities and the Railways which now stand at over Rs. 40,000 crores of delayed principal and interest payments. No enterprise can afford to live with dues of such magnitude and, following a meeting of State Ministers of power with the Prime Minister in March 2001, an expert group was asked to formulate a scheme for helping the States clear these dues. The formula that was suggested, which in essence is what the Union Cabinet has now cleared, was for all the arrears to be converted into 15-year bonds that the State Governments would issue to the utilities and for waiver of 60 per cent of the interest surcharge. Yet, even after protracted discussions between the Centre and the State Governments, only two States — Andhra Pradesh and Jammu and Kashmir — gave their consent to the scheme. The Centre has now taken the next step of making it compulsory for all States to securitise their dues, those that refuse to do so will have to pay the two kinds of penalties that the Government has laid down. From the States' point of view, securitisation only postpones payment of their dues to 15 years later, though they will benefit in the form of a lower real value of the principal and interest.

Whether or not the new threat from the Centre works, the decision that has been taken will directly benefit only the central power utilities; it will not by itself tackle the problem at its roots. The dues have accumulated because the SEBs have not been able to (or have not been allowed to) address the twin problems of major transmission and distribution losses (more the result of theft than of technical shortcomings) and large agricultural subsidies. The States will therefore stand to gain from the settlement offer only if they take steps to improve the financial position of the SEBs so that these utilities will contribute surpluses and not be a drain on the State Governments. Unfortunately, few States have been successful in dealing with these issues. Even the States which have attempted a major reorganisation of the power sector and effected major tariff revisions — Orissa and Andhra Pradesh are the leading examples in this respect — do not have much to show for their efforts. The Centre has sought to aid reform through initiatives like the Accelerated Power Development Programme, which links financial aid with improvement in transmission and distribution. The other initiative is the Memorandum of Understanding that the Centre has signed with individual States to undertake time-bound reforms. Notwithstanding such initiatives, success or failure in restoring the SEBs to health ultimately depends on the ability of the State Governments to muster the political will to end power theft and to reduce subsidies for the agricultural sector.

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