World Bank tells government not to interfere in power sector working

HYDERABAD: India needs to free power utilities and regulators from political and administrative interference and ensure accountability and competition to revive the power distribution industry, the World Bank has said.

Despite corporatisation, boards of utilities are still dominated by the state and lack sufficient decision making authority, the World Bank has said in a review report released in Hyderabad on Monday. Finances of power utilities in the country were weakened owing to providing below-cost electricity to groups such as agricultural and rural consumers, it said.

Highlighting the gap between the volume of subsidies booked by utilities as compensation and the amount they receive from the government, the report said, “This worsens economics of already struggling utilities, undermining their creditworthiness and preventing them from investing to improve service delivery.”

A team of economists, headed by World Bank’s Sheoli Pargal and Sudeshna Ghosh Banerjee, reviewed the Indian power sector, enactment of the landmark Electricity Act of 2003 at the request of power ministry and ministry of economic affairs. The report focuses on distribution as a key to performance and viability of the sector.

Pargal said the power sector had taken giant strides on many fronts, bolstered by a sound policy framework and a favourable economic environment since implementing sweeping economic reforms in 1991. But successes in distribution were less widespread than those in generation and transmission.

Promising models to obtain efficiencies from private participation in distribution need to be scaled up for impact, the World Bank report said.

The World Bank team has observed that the health of the distribution business was closely linked to the share of agricultural consumers who were heavily cross-subsidised by industrial and commercial consumers.

“Share of agriculture in total electricity consumption was 23% in 2011, while revenues from agriculture were only 7% of the total,” the report said.