Power Sector Reforms in India
A Brief Review
Rajarshi Majumder
Department of Economics
University of Burdwan
Pic courtesy: THE HINDU
1
This presentation borrows heavily from
Prof Rangan Banerjee’s lectures &
presentations;
For details see Reference section
Why Power (Electricity)
#4
Overview
• Marked by Unreliable Quality (Brown-Outs), and
Shortage of Quantity (Black-outs)
• Too much dependence on Fossil Fuel & low
share of Renewables
Source: India Energy Statistics, 2016, MOSPI, GoI
0.0
-5.0
-10.0
-20.0
And & Nic
Jam & Kas
Uttar Pr
Madhya Pr
Maharashtra
Arunachal Pr
Mizoram
Manipur
Bihar
Meghalaya
Punjab
Western
Nagaland
Northern
NEastern
Sikkim
All India
Tripura
Assam
Jharkhand
Karnataka
Dam & Diu
Pondicherry
Andhra Pr
Uttaranchal
Southern
Tamil Nadu
Eastern
Gujarat
Haryana
DVC
Himachal Pr
D.N. Haveli
Chandigarh
West Bengal
Chhattisgarh
Kerala
Rajasthan
Goa
Orissa
Delhi
Lakshadweep
#5
Overview
-15.0
Deficit %
WB – 3%
TN – 6%
-25.0
-30.0
• Huge Demand Supply Gap
• Shortage of 12 % and Peak Shortage of 18 %
• Substantial Loss to GDP – Rs. 4360 billion pa
Percentage loss to Actual NSDP due to Power Shortage - 2009
Average and Peak Power
Why Planning is Critical?
Power Generation - Supply Mix
Power Generation - Supply Mix Targets
#1
1
Overview
• Marked by Unreliable Quality (Brown-Outs), and Shortage of
Quantity (Black-outs)
• Too much dependence on Fossil Fuel & low Renewables
• Huge Demand Supply Gap & Loss to GDP
• Cross Subsidies & Price Distortion – industries
becoming non-competitive
#1
2
Overview
3000
Financial Parameters Rs Billion
2500
Revenue
Expense
Loss
Subsidy
2000
1500
1000
500
0
2006
2007
2008
2009
2010
2011
2012
• Huge Subsidy draining Fiscal Resources total subsidy during 2011-12: Rs 419.5 billion
#1
3
Overview
• Preventing expenditure on Social Sector
500
Rs Billion
Subsidy
400
Edu
Health&FW
300
200
100
0
2006
2007
2008
2009
2010
2011
2012
#1
4
Overview
• Marked by Unreliable Quality (Brown-Outs), and Shortage of
Quantity (Black-outs)
• Too much dependence on Fossil Fuel & low share of Renewables
• Huge Demand Supply Gap & Loss to GDP
• Cross subsidies and price distortion – industries non-competitive
• Huge Net Subsidies a drain on Fiscal Resources, preventing
expenditure on Social Sector
• Staggering Loss of the sector preventing capital
inflow into capacity addition
• Annual Loss FY 2011-12: Rs. 800 billion, up by
22% over previous FY
• Total accumulated loss at end of 2012 is Rs 1860
billion [Rs 3590 billion pre-subsidy]
#1
5
Overview
• Marked by Unreliable Quality (Brown-Outs), and
Shortage of Quantity (Black-outs)
• Too much dependence on Fossil Fuel & low share of
Renewables
• Huge Demand Supply Gap & Loss to GDP
• Cross subsidies and price distortion – industries
becoming non-competitive
• Huge Net Subsidies acts as a drain on Fiscal Resources
• Preventing increased expenditure on Social Sector
• Staggering Loss of the sector preventing capital inflow
into capacity addition
#1
6
Reforms-I
• Started in late 1990s with World Bank Support
• Formation of Electricity Regulatory Commissions
• Electricity Act 2003
• Structural Reforms aimed at Restructuring
• Unbundling of SEBs into three separate entities
- GenCom, TransCom, and DisCom
• Progressive Privatisation
• Open Access & Grid Expansion
• Tariff Rationalisation through APDRP
#1
7
Reality-I
• Unbundling of SEBs
Legally Split
Vertical Monopolies
Almost no competition
Privatisation of DisComs mostly
#18
Reality-II
• Progressive Privatisation & Competition
Privatisation of DisComs mostly
Generation also delicensed
Encouragement to Captive Production
Transmission still under PSU
#19
Reality-III
• Open Access & Grid Expansion
NLDC and RLDCs formed
SLDCs inefficient
Grid Discipline absent
Minuscule of Consumers
Wheeling charges not defined/prohibitive
#20
Reality-IV
• Tariff Rationalisation & APDRP
Limited Coverage – 40% of consumers
Energy Billing Outsourced – Corruption (?)
High AT&C Losses – 25-30%
Cost based approach with Retrospective Effect
No incentive to efficiency / cost reduction
#21
Financial Restructuring
• One time Settlement 2002
• Accumulated dues of SEBs to CPSUs: Rs 414 bn
• Waiver of half of the interest / surcharge dues
• Securitisation of remaining through state govt bonds
• National Electricity Fund - 2012
• Provide interest subsidy to DisComs borrowing for
network improvement in non-RAPDRP areas
• Rs 84.6 bn allocated over next 14 years
• Financial Restructuring of State DisComs 2012
• 50% OSTLs to be converted to state govt bonds
• Balance restructured with moratorium on principal
• GoI to provide incentive as grant
#22
Report Card
Unbundling » Limited result; vertical monopoly
Grid Discipline » SLDCs inefficient; overdrawal
Open Access » Prohibitive pricing; slow growth
APDRP » Limited scope; high losses remain
Capacity expansion » Short of target by 40%
Financial Restr » Burden on state govt; FRBM ?
#23
Concerns
» Demand side completely ignored
» Technical Issues not addressed
» Blind faith on market to bring in efficiency
» Environmental impact of Fossil fuel dependence
» Coal supply issues and Import bill
» Rural electrification suffering
» Stiff 12th Plan targets – investors disinterested
#24
Other Issues
» In the name of poor
• Tariff subsidy for rural poor (40% unelectrified)
• Cheap power for irrigation benefits large farmers
» Reliability vs Cheap
• People can enhance productive activities with Power
• Especially for women with home-based production
• Increase in income outweighs price rise
» What about Renewables ?
• Huge initial sink money for production or R&D
• No push / incentive from government
#25
Way Forward
» Stress on technological factors and efficiency
» Enlarge scope of APDRP
» Advance tariff notification with no regulatory
asset creation
» Stress on Renewables
» Cash transfer instead of cross subsidies
» Stop bailing out DisComs with public money
» Rural electrification on priority basis with equal
focus on reliability
#26
References
IEA (2015) - International Energy Agency, World Energy Statistics, 2015
Banerjee, Rangan (2016) Energy Transitions for India - A perspective,
September 2016 [from http://www.ese.iitb.ac.in/~rb/Professional
%20Activities/2016_India22.pdf, accessed on 12-04-2018]
GoI (2006) - Integrated Energy Policy: Report of the Expert Committee,
Planning Commission, GoI
GoI (2015) - A Report on Energy Efficiency and Energy Mix in the Indian
Energy System (2030) using India Energy Security Scenarios, 2047,
NITI Ayog, INDIA
GoI (2016) - India Energy Statistics 2016. MOSPI, GoI
BEE (2015) – Energy Scenario, [from https://beeindia.gov.in/sites/default/
files/1Ch1.pdf accessed on 11-04-2018]
Kolhe, MR and Khot, PG (2015) - India’s energy scenario – current and future,
International Journal of Management (IJM), Vol 6, Issue 7, July
Mukherjee, Kalyan (2012) - India’s Energy Imperatives: Macro and Regional
Dimensions, Journal of Regional Development and Planning, Vol 1, No 1