Short-circuiting reforms

After successfully delaying the proposal to bring more competition into the sector through ‘open access’ some months ago, the ministry of power has come up with a proposal that provides assured returns to private producers, with the risk passed on to public sector firms like NTPC and NHPC.

Under the proposal, private firms with projects of 1,000 MW and above (mega-power projects) would be given the option of setting up their projects on a BOOT (build-own-operate-transfer) basis.

Under this, their power would be bought by NTPC/NHPC and, after 20-25 years, the plant would be transferred to the public sector undertaking.

In other words, the private firm would get an assured return, while the risks associated with finding buyers and then collecting tariffs would be the PSU firms’ headache.

Today, thanks to rampant power theft as well as uneconomic pricing, the losses of the power sector are around Rs 33,000 crore annually. All of this, under the scheme, would be the headache of the PSU firms.

Fortunately, however, there has been stiff opposition from the ministry of finance and the Planning Commission, the proposal has been put off for now.

The finance ministry argued, correctly, that the measure was just another form of counter-guarantee, and therefore against the government’s policy.

While the move by the power ministry has been shelved for now, it may well resurface since it is in keeping with the ministry’s view of how the power sector is to be run. Just last month, the N.K.

Singh task force on power investments had come up with a proposal to offer guaranteed returns to power producers, and the power ministry even scheduled a press conference to announce the acceptance of the report’s recommendations.

The latest proposals are just a variant of the Singh task force’s recommendations, for one of the best ways to assure a return is for central PSUs to buy a private producer’s power at an assured price.

What makes the ministry’s moves even more curious is the fact that, at long last, the country is finally seeing some rays of competition in the sector.

Power trading still accounts for less than one per cent of the country’s power consumption, but it is increasing dramatically — that’s why the Power Trading Corporation’s public issue was over-subscribed 49 times a few weeks ago.

And companies like Reliance Energy and Tata Power have begun applying for distribution licences in areas serviced exclusively by state-owned electricity boards, and setting up large capacity power stations to feed energy to the distribution companies that they already run.

None of this is anywhere near the kind of unabashed competition being seen in the telecom sector, but it is a beginning. Short-circuiting this is not something that’s easy to understand.

Clearly the finance ministry and the Planning Commission will need to maintain their vigil, for the genie’s just waiting to get out again.