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BW Businessworld

Fighting The Power Crunch

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Among the numerous political, social and economic hurdles for businesses in India – energy deficit tops the list. It is the bane of the domestic economy even after 60 years of independence and close to two decades of liberalisation the country is struggling under the burden of power shortage. Experts believe shortage can be addressed by increased participation of private players and an enabling environment. At present the country boasts of the world’s fourth largest installed capacity close to 250 GW. But the latest Central Electricity Authority report, June 2014 estimates that the gap between demand and availability is -53,515 MU (Million units) which is 5 per cent less than required. This is a rough estimation and takes into account 17800 MW scheduled to become operational this year, but have not so far. Kameswara Rao, Energy, Utilities, and Mining Leader at PwC India explains how budgetary allocations and legislative changes need to go hand in hand to help the power sector.      

What are the main hurdles/ problem in the sector?
As a sector under concurrent list, power and utilities face several challenges that differ from state to state. The main problems are of (1) financial viability on account of tariff being below costs; (2) of under-investment and inefficiency which are compounded by state ownership and lack of competition; and (3) lack of a strong long-term planning and directed strategy, as a result of which every state adopts a different approach making it a very fragmented market.

Can these be addressed by the upcoming budget? How?
The budget alone cannot address these problems in a substantive manner and a broader legislative change is necessary in the first instance. The budget, however, can dictate a strong direction for example to improve financial viability and enhance private sector participation.

What would be the recommendations for the government in this sector?

The key recommendations would be to (1) ensure annual increase in tariffs to cover inflation and fuel cost increases; (2) to encourage private participation in distribution by linking loans and grants to real improvements undertaken by discoms in performance; and (3) deregulate all large consumers (say above 1 MW) so that they can chose their own supplier with the regulator setting tariffs only as a safety net.