In reality the SEB bailout plan is just passing the buck from the state electricity boards to the government which, in turn, will pass it on to the banks
The government’s attempts to bail out the heavily indebted state electricity boards by asking the state governments to take over half their debts and convert them into bonds looks good and welcome on paper. But in reality it is really just passing the buck from the state electricity boards to the government which, in turn, will pass it on to the banks.
The electricity distribution companies, or discoms, owe the banks Rs 200,000 crore and have been facing problems getting their working capital requirements from banks. Now the state governments, most of which are bankrupt or in poor fiscal shape, are going to stand guarantee for the loans that these discoms will get from the banks.
What sounds most unworkable is that the discoms have to promise to revise tariffs regularly in line with their costs, besides reduce transmission and distribution losses from the present 27 per cent. Electricity tariffs are already extremely high for the retail consumer and it is unimaginable how much more they can bear. Consumers in Mumbai, the financial capital of India, have come out into the streets to protest against rising tariffs, so one can imagine the plight in other parts of the country.
The government tried the same policy 10 years ago and power experts say they may have to do it again five years from now when this package remains mostly on paper.
The Centre instead should ask the SEBs and state governments to implement the Electricity Act of 2003, which has a provision for bulk consumers to be provided open access facility. This means that bulk consumers can choose their suppliers directly or indirectly anywhere in the country. Bulk consumers are those with requirements of one megawatt and above. They account for 20-30 per cent of power consumption.
If bulk consumers are made to fend for themselves, there will be less of a burden on the retail consumer. The cost of power will come down and there will be 24x7 power available for the retail consumer. Bulk consumers will draw power at the cost of production of power from the power generators. Today they are being subsidised by the retail consumer.
As late as 2011 the ministry of power, in consultation with the ministry of law and justice, had asked the state governments and regulatory authorities to implement the provisions for open access for bulk consumers under the 2003 act. But this is still not being implemented.
Clearly the discoms do not want to give up their monopoly in power distribution as it would expose their inefficiencies. And the regulatory authorities do not want to give up their power to fix tariffs for bulk consumers. So, unless the Centre can resolve this issue, this new package will go the way of the earlier one.
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