Power failure may be a catalyst for reforms: Goldman Sachs

The failure of grids that caused massive electricity crisis in 22 states this week could act as a catalyst for power sector reforms such as improving the financial health of distribution entities, says Goldman Sachs.

However, reforms in the power distribution segment could take longer as that involves 28 states, many of which are soon going for elections.

"While we expect these grid failures to act as a catalyst for power sector reforms, we believe reforms in the distribution segment could take time as it involves 28 states and some are going to the polls over next 6-8 months," global investment banking major Goldman Sachs has said.

Considered one of the world's worst ever power crisis, the collapse of Northern, Eastern and North Eastern grids on Tuesday afternoon hit more than half of India's population.

The incident happened less than 24 hours after restoration of Northern Grid, that had tripped on Monday.

In a report, Goldman Sachs said the outages underscores the urgency for power sector reforms.

Addressing fuel supply issues would result in higher utilisation of power generation capacities.

Also, cleaning up the balance sheets of state-owned distribution companies would help in funding electricity purchases as well as enable increased capex to strengthen the intra state transmission & distribution (T&D) infrastructure, the report noted.

In the 12th Five-Year Plan (2012-17), the total T&D expenditure is projected to be around $88 billion, Goldman Sachs said attributing to Power Grid.

A three-member panel, headed by Central Electricity Authority (CEA) Chairperson A S Bakshi has been appointed to look into the grid failures. The committee is expected to submit its report in two weeks time.