Power sector needs right kind of politics, not financial bailout

A massive financial bailout for moribund state power utilities, reportedly totalling about Rs 1.9 lakh crore, is on the cards, under which the state governments would take on half the accumulated debt burden, guarantee repayment of the rest, and also commit themselves to sustained tariff reform. The move, the second such in just over a decade, underlines, yet again, the sheer bankruptcy of the politics of free power, repressed tariffs and patronage of power theft. Such populism takes its toll, eroding the power sector and the states’ ability to invest either in the power sector or on social infrastructure. It is no wonder that the Indian economy muddles along at well below its growth potential and poverty remains entrenched. Hence the pressing need for effective reform of power distribution that actually puts paid to routine revenue leakage and theft of power. Since the 2001 debt recast of state power utilities, most states have seen separation of generation and distribution into different entities and the setting up of independent regulatory bodies. But the ground reality is that the rupee value of aggregate technical and commercial (ATC) losses in power distribution has risen relentlessly, although states like Gujarat and Delhi have seen notable improvement. Financial engineering cannot offset populism.

Reports say that the latest debt recast would require the states to implement annual revision of power tariffs so as to eschew reckless populism that affects the viability of the state utilities. The practice thus far has been that state power regulators have preferred simply to keep tariff revisions in abeyance, year after year. This must change. Power theft must be stamped out, and tariffs moderated by low ATC losses. Regulators do need to guard the consumer interest and mandate tariffs at competitive rates, but endless recourse to accounting fiddles like ‘regulatory assets’ to keep tariffs unchanged, in a general scenario of rising costs, makes no sense. We clearly need genuine transparency in power tariffs, complete with regular disclosure of utility accounts, losses and budgetary subvention.