'Structural reforms to help SEBs; discoms must mean biz'

The state electricity boards (SEBs) and power distribution companies have been reeling under a debt burden for quite some time and the government is all set to restructure the debts. In an interview with CNBC-TV18, Anil Razdan, Former Power Secretary said structural reforms within the state discoms can improve the plight of these companies. He clarified that a strong message must be sent out to the discoms stating that they would be bailed out only when they mean business.

Also read: Govt's SEB loan restructure plan short-term solution: S&P

Razdan further added, power discoms that are willing to reform themselves must be supported and the regulatory commissions must fulfil their responsibilities. 

Here is the edited transcript of the interview on CNBC-TV18.

Q: The cabinet will decide most likely today but, are you seeing this as just a temporary relief package or something which can resolve some of the structural issues which have been plaguing Discoms?

A: I think basically what you need is a structural reform and a will to reform within the state discoms. A very strong message must go out to the state governments that the central government will only hold their hand if they mean business. First of all, I think there has to be 100 percent metering of all consumers. Only then will there be a true audit.

Besides, subsidy must be released in advance and given upfront because I think the last review of the subsidy release figures I read were something around 62 percent. Though I think the proposal which may go up to the cabinet probably next week, only four states have been covered so far in the restructuring. That’s my information but this could be a trendsetter for the entire country.
 
We also have to give incentive for some accelerated AT&C loss reduction on the lines of the restructured APDRP (Accelerated Power Development & Reforms Programme). The state governments must pick up the liabilities in terms of loans they have given. They must convert them into equity. I think it is essential to monitor the state run distribution companies very closely because otherwise, the hit will be on the state governments.

The banks can only hold their hands to a limited extent and to a point. It can give support to those who are willing to reform themselves and not give indefinite support because after all, the last securitization mechanism was done only about 10 years ago and 10 years is too small a time to fall in this kind of a financial desecrate.

The power regulatory commissions in all the states have a very strong responsibility on themselves because governance really has passed from the state governments to these regulatory commissions which have a huge security. The governments cannot interfere with them and I think the regulators must discharge their responsibilities.

Otherwise, we will also have to take into account or take up on a legislation which would bring regulatory responsibility and accountability. Regulators just cannot be there for five years and they must banish the evil practice of regulatory assets. It must be wiped out because we cannot pass on our debts to future generations, they must be discharged now.

The regulators must also realize that the quality of service to consumers must be improved and for that whatever investment is needed has to be done by the discom because you can only go to a consumer to collect your bills if you give him prompt redressal service and no unscheduled power cuts. I think the whole business of power cuts and browning out must be made more transparent.

I think the proceedings of regulatory commissions must go on TV because the people have a right to know what the distribution companies are saying, what public interest groups are saying, what the finances are. Because if there is to be self governance also among the people or involvement of the consumer, we must gradually convert our distribution sector into a smarter sector through use of smart grids, two way meters which talk both ways, which tell the consumer also what time this grid is under strain, what time the peaking tariffs are likely to come on, when he needs to curb his consumption because we can't have a uniform power tariff throughout the day.
 
People must be told that if at this time you consume power it is more costly because this is costly power which is also killing a lot of distribution companies. They have not been booking their power in advance and they have no real demand side management or demand response management mechanisms in place.

Q: Do you think the conditionalities which are being put up or suggested by the cabinet is enough to ensure periodic revision of tariffs and also pass through of fuel costs, do you think that end objective will be achieved?

A: I think there has to be a state mechanism or monitoring mechanism and central level monitoring mechanism. If those states which are taken up under the special programmes don’t fall in line, they are themselves to be blamed or suffer at the end of the show. I support this idea of not only introducing the lead banks but, the also major lenders to the boards of the distribution companies. And wherever possible we must give them out to franchisees because we had seen in the past that wherever franchisees have come in with set targets there have been dramatic improvements in the AT&C loss reduction.

While most states are stuck around the figure of 25-35 percent and some states which were performing better earlier, are unfortunately deteriorating. Tamil Nadu is a state in point. Similarly UP is a very major consumer and the Hindi heartland moves as UP does more or less culturally.

There has to be strict and strong targets for good tariff given by the regulatory commissions. A stiff AT&C loss reduction target must also be there and people have to be educated and told that you cannot bleed a system forever. It will collapse and as I often say, if there is going to be multi-organ failure there are not going to be one-two remedies which can save the sector, there have to be multiple remedies and very strict disciplines.