Link bailout to mandatory initiatives: Ex-power secy

The Rs 1,90,000-crore debt-restructuring plan for power discoms which holds at stake the health of the entire power sector, seems to have been cleared by the CCEA. Former power secretary RV Shahi explains to CNBC-TV18 the various aspects of the plan and the pitfalls that need to be avoided during the implementation of the plan.

Below is an edited transcript of Shahi's reaction on CNBC-TV18. Q: When the last package was formulated and approved almost over a decade ago, it was assumed that the system had been sorted out. We are now at the cusp of implementing another bailout package which is much bigger. What do you make of the package from what has been announced?
A: The previous package was formulated at a time when the dues that electricity boards owed to different generating companies and coal companies and the Railways were paid out in the form of bonds issued by the boards themselves. That was a different type of arrangement and I wouldn’t call it a bailout or a concession of any significance. Also Read: SEBs to benefit from holistic debt-restructuring pkg: APP
In the last five years, electricity distribution companies have accumulated losses. In 2006-07 the annual loss was the order of just Rs 20,000 crore and that was kept more or less constant during the entire 10th Five-Year plan. But during the 11th Five-Year Plan from an annual loss of about Rs 20,000 crore, the estimated annual loss was almost Rs 80,000 crore in 2011-12. I welcome the package, but it should be action-oriented, not promise-oriented. Q: Is this a workable package because several states have already complained that the plan it is not going to work?
A: I think many of the states are reluctant because that may destabilise their own financial status. And these are the states that have allowed their distribution companies to deteriorate. The Delhi government’s bold step of privatising power distribution has paid off. In the entire five-year period after Delhi's power distribution was privatised in 2002, none of the other states have done anything. Unless this package is linked to specific time bound action, it won't serve the purpose.
Sources in the ministry of power have indicated that the package will be linked to various initiatives that the states, the state regulatory commissions and the state distribution companies need to take. And this would ensure regular annual tariff revision Q: Once this package is implemented and given the average tariffs that prevail across the country and the manner in which these tariffs are set, what kind of hike do you think will be sustainable that can be  implemented over the next two-to-four quarters?
A: I think the hike would be sustainable, but it needs to be communicated to the people. The backlog of non-tariff revision or inadequate tariff revision can be implemented over a period of two-to-three years. People are prepared to pay if reliable power supply is assured. Q: After the previous bad experience of allowing the private sector into power, do you think this suggestion will be implemented?
A: That should be implemented if the ministry of power is strict about it. If all the corporate bodies involved such as the Power Finance Corporation, the Rural Electrification Corporation and the banks adopt the same strict stance, there will be no problem.
If the government revives the inter-institutional groups (IIGs) that were formed in 2004-2005, the excesses of private participation can be avoided. The implementation has to be well-orchestrated involving state governments, state electricity regulators and distribution companies. If a state distribution company is unable to bring down distribution losses below a certain level, it must be franchised if not privatised.
Delhi provides a good model of privatisation and Bhiwandi in Maharashtra provides a good example of franchising and I think both should be chosen. Q: There is also a suggestion that prepaid meters should be installed across the distribution network by March 2013  is among numerous measures that have been doing the rounds for many years now. Do you agree that some of these proposals might be quite difficult to be implemented on the ground?
A: I do agree. I don't think it is possible to install prepaid meters at every node in the value chain.