Misguided spending in the power sector

Vol 4, PW 3 (15 Mar 00) People & Policy

Sinha announced several policy initiatives for the power sector.

Is he is throwing good money after bad "In order to give a fillip to the reform process in the power sector," he said, "Additional assistance of Rs1,000 cr ($230m) will be provided to state and union territory governments." The money, said Sinha, is for, "investments on the renovation and modernisation of old and inefficient plants and for strengthening the distribution system." How this money will be spent is anybody's guess. For India's bankrupt State Electricity Boards, Sinha announced a plan to underwrite the crippling debts which so undermine their credibility among Independent Power Producers - Indian and foreign.

"State Electricity Boards have large overdues to thecentral sector power and coal utilities," said Sinha, "A scheme for securitisation of these dues with the support of central government has been finalised to assist SEBs to clear these dues." Sinha added: "Government support will be linked to reform in the operation of SEBs." Less prudent was Sinha's announcement of a Rs300 cr ($69m) subsidy on loans taken by SEBs from the Power Finance Corporation to fund "high-priority projects". Better would have been an announcement that unprofitable SEBs would be disbanded and their generation, transmission and distribution networks unbundled within a deadline of 12 months! Wishful thinking, clearly.

Hydro based power projects got an unexpected boost with the announcement of an imminent cash injection into the Tehri (Uttar Pradesh) and Natpha Jakhari (Himachel Pradesh) hydro projects ahead of commissioning in March 2002. In addition, the finance minister announced that central government will hike spending on the power sector in its five-year plan from Rs7,626 ($1.75bn) to Rs9,194 ($2.1bn).