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India to spruce up state power utilities

India will overhaul state power utilities by introducing standard accounting policies, cutting transmission and distribution losses to 15 per cent, and tackling crushing debt, Power Minister Suresh Prabhu said.

Prabhu said in an interview late on Sunday he hoped the reforms would lure foreign investment into the sector.

India estimates it will require new capacity of about 100,000 MW over the next 12 years to satisfy its hunger for power, and the bulk of the $200 billion required will have to come from foreign investment.

The poor financial health of India's state electricity boards, expected to run up combined losses of about $6 billion in the 2001-02 fiscal year, has proved a hurdle in efforts to attract private investment.

Prabhu said he expected to decide by the end of the month on a suggestion from an expert panel that almost Rs 336 billion in debts owed by SEBs to federal public sector bodies be settled on a one-time basis through an issue of 15-year tax-free bonds.

Ways to restructure finances

The panel is also examining ways to restructure SEB finances, with respect to technical, commercial and tariff issues, Prabhu said, and is expected to report within a few weeks.

He said some of the inherent problems of the utilities, owned by state governments, could be tackled by accounting standards expected to be put in place within a few months.

"I have directed the Power Finance Corp to frame accounting policies and norms for the SEBs," Prabhu said. "That is being done in association with the Institute of Chartered Accountants of India."

He added, "For the first time we will be preparing commercial data which is internationally accepted. We will be preparing technical data which is internationally appreciable. And thirdly, we'll be creating an information base which will be created by experts and then made available to the states."

The utilities' transmission and distribution losses run to up to 25 per cent of the electricity they generate, compared to a figure of about eight percent internationally, he said.

Prabhu said he wants to trim the figure to about 15 per cent within a time-frame of two or three years.

Willing to accept higher figure

"In the case of India, I am willing to accept a figure of 14 per cent to 15 per cent, because to bring it below that will be technically feasible but commercially unviable," he added.

"If, to eliminate a one-percent loss, you have to incur a cost which is the equivalent of 2 per cent of income, it is not worthwhile. Therefore, the cost benefit would mean that bringing it below 14 or 15 per cent may not be worthwhile."

Other ways Prabhu intends to tone up power generation include attempts to link the eastern region with the rest of India, efforts to boost plant load factors through modernisation of equipment, and to persuade people to use energy more efficiently.

"Today there are acute power shortages in the western, northern and southern parts of the country," Prabhu said. "There is surplus power even today in the eastern part of the country. We cannot evacuate that because there is no transmission line, so it has to be linked."

Prabhu said he is building political will to support these moves through a programme to tell consumers why they can no longer get power cheap, or even free, as many did in the past.

"I am talking to all the consumers," Prabhu said. "I am going to write to all the consumers in India. For the first time. Asking, telling, making them aware about the realities."

Prabhu estimated India would need about $200 billion in foreign investment over the next 10 years.

"We need foreign investment...," he said. "But this investment must come in such a manner that does not compromise with their investors' priorities as well as our India's national consumer interests."

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