The federal government asked the Power Ministry to put in place a mechanism that could boost competition in the power-distribution sector.

The move, if implemented, would end the monopoly of the government-controlled power companies, which are not only inefficient but are also responsible for large-scale power shortages. The Finance Ministry prepared a note that would be placed shortly for the approval of a federal Cabinet committee for infrastructure.

Prime Minister Manmohan Singh heads the committee formed to recommend measures to boost investment in the infrastructure sector. India says it requires foreign direct investment of $320 billion for its infrastructure sector by 2010. The ruling United Progressive Alliance government included power as one of the main components of the infrastructure sector in its national common minimum program, a policy document prepared for governance by the alliance partners before assuming power.

Elaborating upon the details of the proposed power-distribution mechanism, the note says the distribution-wires business should be de-linked from the business of last-mile operations of delivering electricity to the end consumer. Under this provision, the transmission and distribution of wires in a particular area would be placed under a new company, which would allow distribution firms to have access to its network and source power from the grid to deliver it to the final consumer.

Provincial power grids will now only sell power to private companies and bill them under the proposed mechanism. Currently, state-run power companies have sole control over the grids and the distribution network. The new mechanism would transfer the existing distribution network to private companies either on a one-time charge or monthly renting system.

This new mechanism has already been put in place in Delhi, Andhra Pradesh, Orissa and Uttar Pradesh states, where private majors such as Reliance and Tata are controlling the transmission and distribution network. The success of this experiment has encouraged the government to extend it to the national level. A Power Ministry spokesman said the proposed mechanism would be placed before the committee on infrastructure at its next meeting. The ministry has also been asked to prepare a success-story presentation of this mechanism in the states where it has been tried and tested.

“Once the two businesses are separated, multiple players can use the services of the distribution-wire company and compete for consumers. In return, they would have to pay the wire-company wheeling charges. They would also pay the charges of maintenance of the distribution network to the government,“ said K. Subramaniam, an energy analyst.

The Finance Ministry, meanwhile, sent copies of the detailed note to the affected departments, seeking suggestions. The ministry also asked the state governments to adopt this model, once it is cleared by the infrastructure committee, in the ultra-mega power projects. India suffered a massive shortfall of 20,000 megawatts in power-capacity addition in the 10th five-year plan that ended in April.

India initiated power-sector reforms in 1991 to encourage competition and seek private participation in each sub-element of the sector: generation, transmission and distribution. It also announced fast-track private-sector projects with government guarantees. It was followed by the announcement of mega and ultra-mega power projects to attract large-scale global and domestic investment.

The efforts yielded no results, however. The government carried on with the reform plank and proceeded to bring in an independent and transparent regulatory regime. It set up a central electricity regulatory authority in 1998 to control all components of the power sector. The move was initiated to help state electricity boards recover their huge losses. They, however, continued to make losses because of an unsustainable level of aggregate technical and commercial losses.

The government then realized that the distribution system holds the key to the power sector’s long-term sustainability. The distribution sector was privatized initially in Delhi and Orissa states, and the government got mixed results. Now, the government wants to usher the idea throughout the country.

PIN/ UPI.COM