Why India needs a national power distribution company

An national power distribution company will not only be an effective alternative to the slothful behaviour of power discoms but also create a national price-point for power purchase and retail tariff.

The reality that states, left to themselves, had neither the political will, bureaucratic energy nor the financial resources to cater to India's expected need for power was realised as early as 1975 by the Union government.

In order to ensure that the country did not merely depend on the uncertain addition of state-owned generating stations, NTPC Ltd (formerly known as the National Thermal Power Corporation Ltd), a central public sector undertaking under the ministry of power, was set up in 1975.

It is today the largest power company in India with a generating capacity of 42,964 Mw.

The Nuclear Power Corporation of India Ltd, a central government-owned corporation, was set up in 1987 with the objective of undertaking the design, construction, operation and maintenance of atomic power stations.

NHPC Ltd (formerly the National Hydroelectric Power Corporation) was incorporated in 1975 with the objective to plan, promote and organise the integrated and efficient development of hydropower.

PowerGrid (the Power Grid Corporation of India) was incorporated in 1989 and charged with planning, executing, owning, operating and maintaining high-voltage inter-state power transmission systems.

Similar needs to push for financing of the power sector led to the creation of the Rural Electrification Corporation in 1969, and the Power Finance Corporation in 1986.

The concept of a national power distribution company (NPDC) that builds and owns networks and distributes power is, therefore, well within the realms of possibility.

To suggest that it encroaches on the constitutional right of states to be left alone in the power sector is demolished by the spate of central involvement and central schemes over the years.

My colleague and partner P Ramesh (who heads our Group Energy Businesses) and I have been discussing the need for an NPDC for almost a year now.

To start with, the NPDC could be charged with taking over the assets of urban areas falling under the purview of the "Restructured Accelerated Power Development and Reforms Programme" (RAPDRP), as well as being the channelling entity for the central funds for revamping the network in these areas.

The RAPDRP scheme envisions reaching a 14 per cent "loss" level after investments and, therefore, what can emerge is an efficient network within five years across almost 1,300 towns that are under the purview of this scheme. With less than 10 per cent of the RAPDRP funds disbursed as of now, the time is right for creating an NPDC.

Over time, the entity could also be charged with running the distribution network covered under the rural schemes of the Rajiv Gandhi Grameen Vidyutikaran Yojana, with the directed subsidy for the needy being routed through this entity in a transparent manner.

In a related development, the government is considering the model in which a power supplier will not manage the electricity distribution network. In a separate "carriage and contract" model, like the UK, the network would be owned by one company, while the suppliers of electricity could be more than one. India has 5,545 urban agglomerations and towns.

With the NPDC model in place, the targeted 1,300 towns under the RAPDRP scheme can provide the demonstration effect, setting the example for the rest of the country to emulate.

But why this urgency for a power distribution company at the national level? Here are three pressing reasons:

(i) Fix the leaking bucket of discoms: Distribution is the tail that wags the power dog, and is in the realm of 29 state governments.

India's distribution losses and power sector economics are inter-related, and in the theatre of the absurd. The average cost of supply for all power companies has exceeded the average revenue realised.

Not surprisingly, the accumulated losses of financial utilities were estimated at Rs 2,00,000 crore at the end of 2011-12, up from Rs 1,23,000 crore at the end of the previous year. The "unintended consequence" in the push for distribution company (discom) profitability is that they are aggressively using load management (power cuts) to control purchases. India just cannot afford to wait any longer for the turnaround of state discoms.

Society and the economy are both being held to ransom for what is euphemistically called T&D ("theft & dacoity") losses. After a Rs 10,000-crore bailout package in 2002, we now have a Rs 2 lakh crore financial restructuring plan for discoms. Will that be Rs 10 lakh crore by 2020?

(ii) Stranded capacities and effective alternative to discoms: All stranded capacities, surprisingly, are not because of a lack of gas, coal or evacuation capacity. A substantive portion is because of a lack of off-take by discoms - often referred to as case 1 and case 2 bids.

This is an embarrassing waste of ready capacity to deliver power to a power-starved nation that parallely erodes the net worth of promoters and creates stressed assets in the banking sector.

An NPDC would be able to pick up stranded capacities and become an effective market-maker for generators in the face of slothful behaviour by discoms.

It would also make for a robust alternative market that could even bring back sparkle to the sector by having sovereign-backed power purchase agreements.

(iii) Energy security, price pooling and a national pricing benchmark: India clearly requires a price-pooling arrangement.

First, there is need to diversify our energy basket. If nothing is done, the country is set to become 83 per cent energy-import-dependent by 2040.

The diversified basket should embrace nuclear, hydro, renewable, gas and coal-based power with purpose and focus.

Today, discom behaviour is short-sighted and tends to buy from only the cheapest source, which happens to be coal-thermal in the short run.

Price pooling can only be achieved at a national level, and national energy-security cannot be left to the self-serving micro decisions of 50+ regional entities.

Second, electricity tariffs cannot be allowed to have great variations from state to state depending on the input-basket, and the vagaries of state regulators setting, or not setting appropriate tariffs, and often queering the pitch completely in other ways.

The renewable power obligation and its related renewable electricity certificates trading market have also not taken off. With a combination of input and efficient distribution, an NPDC can create a national price-point for power purchase and retail tariff, which can be the benchmark that other utilities can aspire to emulate.

Clearly, a national power distribution company is an idea whose time has come. 

(Vinayak Chatterjee is the chairman of Feedback Infra)