World Bank asks AP to free power utilities from politics

Hyderabad, Feb 23 (INN): The Andhra Pradesh State needs to ramp up its transmission and distribution infrastructure if it wants to revitalize its power sector and achieve Power for All for the state, says a World Bank study.

More Power to India: The Challenge of Distribution, presented in Hyderabad on Monday is a review of the Indian power sector across key areas of access, utility performance, and financial sustainability. The study, conducted at the request of the Government of India, has identified electricity distribution to the end consumer as the weak link in the sector.

The study recommends freeing utilities and regulators from political interference, increasing accountability, and enhancing competition in the sector in order to move it to a higher level of service delivery. It calls for a transition from administratively run to commercially run utilities.

The power distribution sector in Andhra Pradesh has made losses since 2012-13. This is despite the state being an early reformer (early 2000s), and having initiated several initiatives like improved metering, regular energy audits, dedicated industrial feeders, regular increase in tariffs and despite it being among the states with the lowest technical and commercial losses (AT&C) in the country.

The report points to several reasons that have constrained the power sector in the state from growing including the cost of power purchase which rose sharply for distribution companies (discoms) from Rs 2.81per unit in 2009-2010 to Rs 3.39 per unit in 2011-12 and to Rs 4.25 per unit in 2012-13. The volume of power purchased from short term sources rose from 860 million units (MU) in 2009-10 to 10,094 MU in 2012-13 ' a 14 percent rise.

Andhra Pradesh is constrained in purchasing cheap power from other regions because of inadequate inter-regional transmission links even though the southern grid is now a part of the national grid.

The lack of power is compounded by the inefficiency of existing plants. The Plant Load Factor (PLF) has deteriorated from 87 percent in FY09 to 80 percent in FY14 and delays in commissioning of new plants due to lack of fuel.

'As the government's 24x7 power initiative builds up momentum, utilities need to make sure they are well prepared to use the funds that will become available - to strengthen their transmission grids and distribution infrastructure, create robust corporate governance mechanisms, enhance billing and collection systems, institutionalize regular tariff reviews, and position themselves for extending reliable electricity service to all,' said Sheoli Pargal, Economic Advisor, World Bank and author of the report while addressing a press conference at the Administrative Staff College of India (ASCI) here on Monday.

While making an urgent call for change, More Power to India recognized the many impressive strides that the Indian power sector has made over the years. Generation capacity tripled between 1991 and 2012, boosted by the substantial role played by the private sector. A state-of-the-art integrated transmission grid now serves the entire country. Private distribution utilities in Kolkata, Mumbai, Surat and Ahmedabad, which have been owned and operated by the private sector since before Independence, point to potential gains from private participation. Grid-connected renewable capacity has risen from 18MW in 1990 to 25,856 MW in March 2013. And more than 28 million Indians have annually gained access to electricity between 2000 and 2010.

However, according to the study, the financial health of the sector is fragile, limiting its ability to invest in delivering better services Total accumulated losses in the sector stood at Rs 2.88 trillion or 3 percent of GDP in 2013.

These losses are overwhelmingly concentrated among distribution companies (discoms) and bundled utilities ' State Electricity Boards (SEBs) and the State Power Departments, says the study. Sector losses have led to heavy borrowing ' power sector debt reached Rs 5.07 trillion in 2013. More than 40 percent of the loans were made to discoms.

Over the last two decades the sector has needed periodic rescues from the central government -- a bailout of Rs 350 billion in 2001 and a 'restructuring package' of Rs 1.9 trillion that was announced in 2012.

In Andhra Pradesh the subsidy received as a share of subsidy booked began to decline from 2008-09 onwards and was only 50 percent in 2011-12, resulting in cash flow problems for the discoms.

State financial support, which has become essential to keep many utilities afloat, has a high opportunity cost. The study estimates that 15,000 hospitals and 123,000 schools could have been developed in 2011 if the power sector had not pre-empted these funds.

The World Bank recommended the build in resilience against financial, operational and natural shocks by investing in infrastructure and tightening operational quality. "The State governments should pay subsidies transparently, fully, and on time, when they mandate free power supply. They should ramp up investments to meet the increase in demand that will ensure under the 24x7 scheme. They should augment the generation capacity by completing on-going projects on time and strengthen the grid and enhance its ability to absorb power flows, especially from renewables," said Sheoli Pargal.

Other experts including Sudeshna Ghosh Banerjee, Mohua Mukherjee and Mani Khurana were also present.