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Interaction | November 2012

Fuel availability a contentious issue for power sector

Fuel availability is increasingly becoming a contentious issue and if it remained unresolved, the current situation shall have an adverse effect on the capacity addition through competitive bidding projects, says Dr Promod Deo, Chairman, CERC, in an interaction with Power Today.

After financial reforms for electricity distribution firms, the government is reworking on bidding process for the power generation projects and also suggested few reforms. Power producers have expressed their discontent, while the bankers are reluctant in extending new loans under proposed bidding norms. What are the observations of CERC on the current proposed reforms?
The power ministry has asked us to submit our views on the entire issue. We may be producing soon the statuary report under the Electricity Act 2003 Sec 79/2. I cannot share the same at this point of time. However, few remarks by the power producers and bankers need a relook. In the case of distribution bidding, about 43,000 mw of generation capacity has been contracted through competitive bidding process. Based on supercritical technology, 16,000 mw of capacity has been contracted through the Case 2 bidding process for UMPPs. Two more UMPPs, one in Orissa and the other in Chhattisgarh are in pipeline. Average tariff for these projects will be in the range of Rs 2-3 per unit which is much lower than the recent cost plus tariffs.

However, for such projects, fuel availability is increasingly becoming a contentious issue. There is a shortage of fuel for power production. There are challenges in development of greenfield coal blocks. We need to improve efficiency in coal production. Unless resolved, the current situation shall have an adverse effect on the capacity addition through competitive bidding projects.

The government has approved the financial restructuring plan for state discoms, under which short term loan can be converted into long term bonds. What, according to you, would be the financial implications of such debt restructuring?
There were many issues such as non-revision of tariff, poor operational efficiency of discoms, non-disbursement of subsidy by government that led the poor financial performance of the state distribution utilities. Discoms have been taking short term loan to bridge the gap left in annual revenue requirement and annual revenue realisation. The suggestion to convert short term loan to long term bonds may give succour in the short run, but it would be desirable to ensure commitment in terms of regular tariff revision, allowing legitimate cost through tariff and higher operational efficiency, which can bring long term solution in terms of viability of distribution business.

Is CERC contemplating any measures to ensure that SEBs bring down their high T&D and AT&C losses so that the honest consumers are not burdened with high tariffs?
As mentioned before, power distribution in states does not come under the jurisdiction of CERC and the Forum of Regulators (FOR) deliberates on the issues at stake in distribution. High level of losses at distribution level poses the biggest challenge as a result of which honest consumers have to bear the burden caused by dishonest consumers/officials. FOR has recommended various measures to reduce loss levels such as: feeder separation for agriculture, technological interventions, mechanism for sharing of gains as a result of loss reduction over and above the target, suitable local area based incentive and disincentive schemes for the staff of the utilities linked to loss reduction.

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