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Government to end SEBs' monopoly in power sale

India will soon introduce legislation to end state utilities' monopoly on electricity distribution and allow energy firms to sell power directly to consumers, Power Minister Suresh Prabhu said on Thursday.

The move will lift restrictions that have hobbled the energy-starved country's decade-old reform effort and remove one of the stumbling blocks on the way to luring foreign investors into the sector.

"It (the legislation) will create a policy framework and also provide a legal framework for direct sales, third party sales and all these issues," Prabhu told Reuters in an interview.

He said the bill would be introduced in the monsoon session of Parliament that begins on July 23 and would override local laws of states.

Power producers in India have so far been forced to sell electricity to government-run state electricity boards, which are saddled with mounting losses, leading to calls for an overhaul of the power distribution system in the country.

Most state utilities are nearly bankrupt because they are paid for less than half the power they sell due to subsidised supply to farmers, rampant theft as well as inefficient transmission and distribution.

The state utilities are likely to make a combined loss of $5.1 billion this year and owe $8.8 billion to federal coal and power companies.

W have decided that a generator can sell power directly to a consumer," Prabhu said.

ATTRACT INVESTORS

The move to free up electricity supply is expected to attract investors whose fears of entering the power sector have been fanned by a row between US energy giant Enron Corp and a local utility.

The utility in Maharashtra recently defaulted on dues to Enron's Indian venture, Dabhol Power Co. Dabhol issued a preliminary termination notice and the utility stopped buying power from the $2.9-billion plant.

India estimates that 100,000 MW of fresh capacity will have to be installed over the next 12 years to meet its power needs. Most of the $200 billion in funds that will be required will have to come from foreign private investment.

Prabhu said state utilities were unlikely to resist the loss of their monopoly as state power boards did not have funds to invest in distribution.

"If the SEBs are themselves saying that because of the financial inability they cannot even service the present obligations, where's the question of making fresh investments?"

The federal government has persuaded states to reform their monolithic power boards, set up regulatory commissions and meter power supplied to every customer.

Prabhu said the state utilities would have to set their house in order and settle the outstanding dues of $8.8 billion to federal power and coal companies.

He also denied media reports that the outstanding amount would be written off. "Where is the question of writing off? We are recovering the principal 100 per cent."

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