Positive developments in the power sector
Reforms in the power sector appear to be yielding the desired results, if recent events are any indication. For example, the US-based AES Corporation, which had decided to exit India last year, now wants to stay on and even expand its activities in this country. The company cites the recent passage of the Electricity Act as the primary reason for its change of plans.
Equally heartening is the fact that some Indian companies like Reliance, Tatas, GMR and Lanco have lined up investment proposals worth Rs 18,000 crore in power generation during the last one month itself. If these plans materialise, an addition of at least 5,000-mw capacity in power generation in the private sector can be expected in the next five years. Indeed, some people may be sceptical about these projects and they may even cite India's experience in the early 1990s when a spate of power projects were announced but failed to take off. The renewed optimism in the power sector appears to have stemmed from the passage of the Electricity Act.
The Electricity Act, 2003, has a number of dimensions, including rationalising of existing laws, promoting competition and protecting consumer interest, and introducing newer concepts like trading and open access. Further, some states have already enacted laws against power theft, one of the main concerns of the private investors.
Earlier, several states had passed their own reform Acts resulting in different states following different laws, thereby, driving away potential investors (especially foreign investors). With the passage of the new Act by the Central government, uniformity in electricity laws has been achieved to a great extent.
There is, however, a need to lay greater stress on privatisation. The reforms process should not halt at the corporatisation of state electricity boards but should go the extra mile: privatisation of the SEBs. Privatisation may not provide a cure for all the ills but it is the best possible solution. From an owner, operator and regulator, the government should aim to become only a facilitator. The experience of other nations, especially in East Asia and Latin America, is a case in point. In these countries, the power sector was more or less similar to the one prevailing in India, with high T&D losses, low efficiency, mounting losses of SEBs and high cost. Privatisation of power in many of these countries has since resulted in lower distribution losses, improved labour productivity, falling power prices and improved customer service. Indeed, privatisation in India is already paying dividend. In Delhi, for instance, Reliance scaled down the labour force by 4,500 employees through VRS. There is every reason to believe that similar results can be achieved through the privatisation of the power sector in India.
(March 16-31, 04)