'Privatising power distribution can curb thefts'

K Vasudevan, director, Alstom and chairman of the Energy Cell of Confederation of Indian Industry, believes that the next five years are very crucial for India.

Asserting that most electricity boards will turn around soon, he says that in 15-20 years, India will produce enough power to meet its needs.

Vasudevan is of the view that the new power sector reform process initiated by the government is going in the right direction.

Explaining that the government failed initially because of its concentration on power generation by independent power projects, while ignoring the distribution sector, Vasudevan elucidates his reasons for optimism in an interview with Shobha Warrier.

How do you describe the energy scene in India?

The energy scene in India is that of shortage. But we have to categorise the power situation into areas. One is that of energy and the other, peak demand. Most states suffer from peak demand deficiency. Energy shortage is less, but peak demand shortage is more.

In the case of Tamil Nadu also, we have met the energy demand but suffer from peak hour shortage.

The present policy of the government is right in the sense that they are targeting the distribution sector.

Where did the government go wrong when they first started the reform process?

The first level of policy of reforms was oriented towards IPPs (Independent Power Projects) for power generation. That has been a failure because no guarantee came for the payment.

The central government sanctioned projects, but they did not guarantee payment. Let me add that the central government need not give sovereign guarantee because it is a business.

But the electricity boards were not in a position to pay. For example, the Tamil Nadu Electricity Board is the only state electricity board that has now paid 90 per cent of what they owe to IPPs, and in other places, they have a problem.

Second thing is, IPP power is more expensive. This is natural because they are building a lot of equipment at today's cost while the electricity boards are able to generate cheaper electricity because their older equipment has been fully depreciated to a zero book value. 

Do you see more players in the power generation scene?

Private parties will come in to generate power, but not today.  If reforms come true and electricity boards become financially viable, then in five years time, which is a transit time, private parties would be interested in entering the scene because they know then that they will be paid.

For example, the TNEB may start making a profit in a couple of years time.

Are you happy with the speed at which power sector reforms are taking place?

Yes. Now, it is a matter of satisfaction because the target is transmission and distribution sector. In this sector, the loss is of the order of 20 per cent and that is predominantly on the distribution side. Loss in the transmission side is comparatively less because of the high voltage used.

In the distribution side also, there are two types of losses; technical and commercial. Commercial loss is mainly due to theft and now, the government is trying to concentrate on metering.

Hundred per cent metering is going to come soon. Once the metering comes, you will know where the power is going. That way, losses can be checked in the distribution sector. Today, the billed energy is much lesser than what you are generating.

The central energy secretary has said that out of the 550 billion units of electricity produced by the country, one third is lost due to power theft. Is metering alone the answer to the problem?

See, the loss takes place in transmission and distribution. In distribution also, loss is due to technical and commercial reasons. They are attending to technical loss by installing good equipment but they are trying to plug in the commercial loss that takes place due to theft done knowingly by people.

Theft takes place due to non-metering. Once metering is done, this can be prevented. So, what the government is doing now is good.

Looking at distribution losses and reducing them is good because you will get more power for a much lower investment. For example, to get 100 MW, you have to invest in crores, but if you invest one fourth of that in curbing losses, you will get the same 100 MW by reducing the losses.

Do you think the problem of power theft can be addressed better by privatising the distribution part?

Yes. Privatisation of distribution has a couple of advantages. First, the company will invest in some modern equipment. Second, they will ensure that 100 per cent metering is done and everything is billed. They will also ensure revenue collection. These things will be better taken care of by private parties.

But initially, there will be resistance. For example, in Delhi, they have got two agencies operating. They were bold enough to come into the sector but it takes time to come out of the age-old attitudes.

Why are private parties hesitant to come into the power sector?

The government introduced a scheme for the private parties to come in only now.

But it is sluggish...

It is sluggish because the loss is so high and the equipment so old and metering is not done, so it calls for a lot of investment to begin with. You just can't take over and start billing and collecting the revenues. That is not what distribution is. In distribution, you have got to see whether the network is okay, the power voltage is okay, and whether you have the right equipment. You need investment for the right equipment. Before they start making money, they have to invest a lot of money.

When private parties start generating power, it will be expensive. Do you think the public will approve of it?

There is a limit to which the cost can go up. We have also made presentations to the government and the regulatory commission that it is only up to a point that the public can take such increases. So when you talk about the cost of power, it is the total gambit that you are looking at.

Cost of power generation is one issue and tariff is another issue. Suppose the cost of buying power or generating power is `X', you add `Y' as your profit. If your `X' itself is very high due to operational inefficiency, high overheads and large manpower, it has to be looked into. Now, they are looking into these problems.

The government has got certain powers to work. They are going to give funds and grants to electricity boards. So I am sure good electricity boards can take advantage of the situation.

Most state electricity boards run into huge losses. Is privatisation an answer to this pathetic state according to you?

Privatising electricity boards totally is not an answer. It has to be done in stages. First you start with the distribution sector, which the government is doing now. Then comes transmission and only after that, generation.

That's how they have done it in the United Kingdom. The success of privatisation of the entire electricity system is because they started with distribution and later on moved to transmission and generation. In UK, generation was always central. It was called Central Electricity Generating Board. And, they were very successful in privatising the board.

In India, the best thing is to follow the same method. But the problem here is, India is too big a country and we have state generation and central generation. Central generation is gradually increasing because of National Thermal Power Corporation. Maybe after sometime, generation can be centralised under the government. That's not a problem at all.

After the Enron fiasco, do you foresee players from outside India coming here?

They will come. Maybe not now, but after five years, things may change. That is why Shahi (Union power secretary R V Shahi) also called the next five years as the transit time. During this period public sector undertakings like NTPC, National Hydroelectric Power Corporation etc are going to increase the generation of power by 250 per cent.

Now, everybody is saying that finance is not a constraint. There is enough money to be given. The government lost five years because their first decision not to invest money in power generation failed. Certain stringent steps have been taken to make electricity boards financially viable.

If the good boards fall in line with it, turn around and start making profits, private parties will start coming in. After five years, everybody will forget the Enron fiasco.

The good thing is that both the ruling party and the main opposition support the same reforms. So there will be continuity, whoever comes to power. I am quite confident that if the government implements the tough measures talked about by the energy secretary, the situation will definitely change.

But let me give you a word of caution. It will not be a 100 per cent change in the whole of India. It will change the states that are progressive.

Anyway, it will take 10-15 years at least to make the energy scene from deficient to sufficient.

Where are we as far as non-conventional energy generation is concerned?

Sources in the ministry of non-conventional energy say that by 2012, we can add 10,000 MW out of the originally planned 100,000 MW. But even 10,000 MW is a tall order.

Pressure is building for more generation from non-conventional energy sources like wind power, biomass, solar, waste materials, etc.

Non-conventional energy sources can contribute only 8-10 per cent to start with but fact is, non-conventional energy is green power. The problem is, it depends on external forces like wind, sun etc.

 Photographs: Sreeram Selvaraj