According to reports, the World Bank is sceptical about India’s ambitious bailout plan for state government-owned distribution companies announced in September last year.
World Bank sceptical about India’s power sector bailout
Speaking to reporters on Tuesday at the launch of a report, Ashish Khanna, lead energy specialist for the World Bank, said that while bailouts are an opportunity in crisis, “the proof of the pudding is in eating it”. He added that it will take six months to a year for the results to be visible and termed it more of a banking sector crisis rather than a power sector one.
Electricity distributors owe Rs.2 trillion to banks and other financial firms. Under one of the most important policy initiatives of the government, state governments are to take over half the outstanding loans of state electricity distribution companies and convert them into bonds, which would then be issued to banks backed by state government guarantees. The remaining 50% debt was to be restructured by banks with a three-year moratorium, or a repayment holiday on principal repayments.
The World Bank has long been associated with the Indian power sector. Over the last decade, it has provided support to Union government entities for generation, transmission and renewable energy investments, and to selected state electricity boards for investments associated with sectoral reform. Energy sector projects worth $3.5 billion currently being funded by the bank and proposals amounting to $1.5 billion are in the works.
The central government announced a bailout plan in September 2012 for power distribution companies, or discoms, which included regular tariff revisions as part of the conditions to be met.
While the financial restructuring of four state discoms—of Tamil Nadu, Uttar Pradesh, Rajasthan and Haryana— amounting to Rs.95,252 crore has been finalized, special dispensation has been taken up for Jharkhand, Bihar, Andhra Pradesh and Karnataka.
Khanna said that the World Bank had shared its views with India’s power ministry and added, “while the contours are there, the question is how seriously you implement it”.
The performance parameters for the scheme include reduction of aggregate technical and commercial (AT&C) losses and reduction in the gap between annual realized return (ARR) and average cost of service (ACS).
Distribution losses, which occur due to theft and inefficiencies in transmission and billing, have been estimated at about 27%. This is despite 10-year-old government schemes aiming to cut distribution losses to below 15%.
This is the second such bailout for the Indian distribution sector in a decade; the first one failed to incentivize the states to act. The Union power ministry has already circulated the model State Electricity Distribution Responsibility Bill 2013 on the lines of Fiscal Responsibility and Budget Management Act, to be adopted by the states to enforce discipline in the working of the beleaguered state power distribution companies.
In an unrelated development, a new World Bank report has found that separating the electricity supply systems for agriculture consumers has led to better quality of power for rural consumers. The finding came from a study conducted in Gujarat and Rajasthan.
The report—Experience of Rural load Segregation Schemes in States—recommends feeder separation, but suggests that metering of all rural consumers also be considered and data collected from the separate feeders be used to better manage power supply.
“According to the survey, prior to feeder segregation, more than 80% consumers in both Gujarat and Rajasthan complained of low voltage problems, which came down to 6% after segregation; more than 80% domestic and over 50% agriculture consumers complained of frequent power outages, which reduced by less than half in both the states,” a release summarizing the report said.
The government requested World Bank to conduct the study to analyse different approaches to rural feeder segregation across India. Many Indian states, including Andhra Pradesh, Haryana, Punjab, Karnataka, Maharashtra, Madhya Pradesh, Rajasthan and Gujarat, have already taken steps to separate their supply systems for agricultural and other consumers.
“While electricity linkage is critical for growth and poverty alleviation, a ‘one size fits all’ approach will not work. There is need for a national guidance framework outlining the broad principles that will help make rural electrification economically viable. Each state should prepare their rural power supply improvement proposal based on their specific needs, keeping the national framework in mind,” said Khanna, who has also co-authored the report.