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India powers new
policy
By Kunal Kumar Kundu
MUMBAI - In further proof of its
unrelenting reforms momentum, the government last
week cleared the National Electricity Policy.
Taking forward the reforms initiated through the
Electricity Act, 2003, the policy is expected to
serve as a guideline for both central and state
power regulatory establishments. It aims at nearly
doubling the per capita power consumption by 2012,
stresses on competition for consumer benefit and
deals with financing issues, including private
participation.
The stated objectives of
the policy are:
Electricity for all households within the next
five years.
Fully meeting power demand by 2012 .
Supply of reliable and quality power at
specified standards in an efficient manner and at
reasonable rates.
Increase of per capita availability of
electricity to over 100 units by 2012.
Financial turnaround and commercial viability
of the electricity sector.
Protection of consumers' interest.
The
National Electricity Policy lays down the approach
for developing rural electrification distribution
backbone and village electrification to achieve
the target of completing household electrification
in the next five years. Around 10 million
households and 100,000 villages with no proper
electricity connections will be provided
electricity in the next five years. The policy
will also provide at least 1 unit per day at
subsidized rates to below poverty line families.
The policy includes guidelines on the recovery of
cost of services and focuses on the targeting of
subsidies. It is expected to help bring more
private players and investment in the power
sector.
It also seeks full development of
India's hydro potential. Exploitation of
non-conventional energy sources such as small
hydro, solar, biomass and wind for additional
power generation capacity is also envisaged.
Development of a national grid is an important
feature of the policy, which recognizes the need
to ensure recovery of cost of service from
consumers to make the power sector sustainable. It
also recognizes that a minimum level of support is
required to make electricity affordable for
consumers of the poorest segments. Those below the
poverty line who consume below a specified level
may receive special support in terms of tariff.
Efforts would be made to ensure that the subsidies
reach the targeted beneficiaries in the most
transparent and efficient way. Special emphasis
has been put on the time-bound reduction of
transmission and distribution losses and promotion
of competition aimed at consumer benefit.
The new power policy estimates that to
meet the objective of rapid economic growth and
"power for all", including household
electrification, an investment of about Rs 9
trillion (US$200 billion) would be required to
finance generation, transmission, distribution and
rural electrification projects up to 2012. Public
sector investment, both at the central and state
levels, will have to be stepped up and a sizeable
part of the investments will need to be brought in
from the private sector.
Public service
obligations such as increasing access to
electricity to rural households and small and
marginal farmers will have higher priority than
public finances. To attract adequate private
investment in the sector, the return on investment
will need to be put at par with that in other
sectors and an appropriate balance will be
maintained between the interest of the consumers
and the needs for investment, as per the new
policy.
Open access in transmission will
promote competition and in turn lead to the
availability of cheaper power. The policy
emphasizes that regulatory commissions need to
provide a facilitative framework for
non-discriminatory open access at the earliest,
including technological upgrades of the State Load
Dispatch Centers by June 2006, to ensure data
acquisition capability on a real time basis.
Open access to distribution networks,
initially for bulk consumers, is expected to
increase the availability of a cheaper and
reliable power supply. State regulatory
commissions have been mandated to notify
regulations by June 2005 for laying down the road
map for introducing open access in distribution.
It has also been envisaged that the amount of the
cross-subsidy surcharge and the additional
surcharge to be levied from consumers who are
permitted open access should not become so onerous
that it eliminates competition.
The power
policy stipulates that regulatory commissions
should determine indices of the quality of power
supply. Parameters should include frequency and
duration of interruption, voltage parameters,
transformer failure rates, waiting time for
restoration of supply, percentage of defective
meters and a waiting list of new connections. The
commissions will specify expected standards of
performance. The policy emphasizes that the
central and state governments as well as the
commissions will facilitate capacity building of
consumer groups and their effective
representation. This will eventually enhance the
efficacy of the regulatory process.
Emphasis
will be on higher efficiency levels of generating
plants through renovation and modernization,
international-level redundancy and margins in
transmission capacity, adequate transitional
financial support for reforming power utilities,
encouragement for private sector participation in
distribution, putting in place an independent
third party meter testing arrangement, adoption of
an information technology system for ensuring
correct billing, speedy implementation of
stringent measures against theft of electricity,
emphasis on the augmentation of India's research
and development base, energy conservation
measures, an appropriate tariff structure for
managing the peak load, development of training
infrastructure in the regulation, trading and
power market, boosting renewable and
non-conventional energy sources, and an early
appointment of an ombudsman for the redressal of
consumers' grievances.
The industry has
welcomed the new policy, particularly the
provisions of open access to transmission and
private sector participation in the rural sector.
Open access has always been a major issue as there
are many private captive power plants with surplus
power that is barred from transmission. Also, with
72% of households without electricity in India,
clearly there is enough room for private investors
in rural electrification. The new policy is
expected to result in the entry of more private
players. The policy also envisages an additional
generation capacity of 107,000 megawatts over the
next few years, which throws up exciting
opportunities for power equipment and generation
companies.
Kunal Kumar Kundu is
a senior economist with a leading bilateral
Chamber of Commerce in India. He has a Masters in
Economics with specialization in econometrics from
the University of Calcutta.
(Copyright
2005 Asia Times Online Ltd. All rights reserved.
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