'The bottomline is to maximise sector returns'

A new tariff regime is all set to roll out for the power sector. With the current tariff regime coming to a close on March 31 2004, policymakers have been working overtime to put have a new system up and running. The Central Electricity Regulatory Commission (CERC) has already put out its draft policy for a debate. Ashok Basu, chairman of CERC and chief draftsman of the new policy, expresses his views in an interview. When did you start drafting the policy? We started work in May last year. Our objective was to bring out a policy that would improve upon the existing one, try and meet the aspirations and expectations of all stake holders and move in line with the new Electricity Act. We held discussions with almost 200 stakeholders. We had separate hearings for each group and the new policy has made an effort to include most of the inputs. The stakeholders with whom we held discussions include developers, investors, state electricity boards, central public sector units, lenders, trade unions and consultants. What are the new features of the proposed policy? The first thing that we had to keep in mind was that the new policy had to be in line with the new Electricity Act. The idea is to promote investments, while looking at a tariff regime that progressively reflects the cost of supply. The new policy also seeks to encourage competition and efficiency . The draft policy which is currently up for debate would be the guiding factor and methodoligy for the state electricity regulatory commissions. While looking at investor-friendly returns for investors we have also tried to address consumer interests. The bottomline is to maximise returns for the sector. How have you encouraged competition? We have urged the central government to finalise the guidelines for competitive biddings which should be the basis on which states should implement projects. According to the new Electricity Act, once a project is finalised through the competitive bidding route, the tariffs are adopted by the regulator. This system would ensure a less-intrusive mechanism and encourage efficiency and competition. If that is the case, then why this policy? Well even if the government is to come out with the guidelines today, it would be another four to five years before projects can actually come on these terms. This policy is for the transition phase. Do you think central public sector power companies too should compete with private powercos? That is the idea. We would like the state governments to decide upon the project site and then call bids from all developers including CPSUs to bid. The project should be awarded to the lowest tariff -based bid. This would ensure transparncency and efficiency. However, there is very little on fixed costs in the policy. This involves a large portion of the cost and you have not taken a normative approach for this cost. Yes, this is a grey area. But there is no definite cost that we can take for capital costs. Equipment costs have varied from time to time and that makes a difference to the capital costs. We are open to looking at it, provided there is a sustainable way of calculating costs.

'The bottomline is to maximise sector returns'

A new tariff regime is all set to roll out for the power sector. With the current tariff regime coming to a close on March 31 2004, policymakers have been working overtime to put have a new system up and running.

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