Conference on Distribution Reforms
October 12-13, 2001, New Delhi

Welcome Address by Mr.Rajendra S Lodha, President-Elect, FICCI

Hon’ble Shri Suresh Prabhu, Union Minister for Power, Government of India
Shri A K Basu, Secretary, Ministry of Power, Government of India,
H.E. Mr. Bernard de Monteferrand, Ambassador of France in India,
Mr Edwin Lim, Country Director-India, World Bank,
Shri R P Singh, Chairman & Mg. Director, POWERGRID,

- Your Excellencies
Distinguished Speakers,
Ladies and Gentlemen,

A very warm welcome to you all.

It is indeed a privilege for all of us to have in our midst Shri Suresh Prabhu who has, in a relatively short time, brought a refreshingly different dimension to the functioning of the Power Ministry by infusion of his personal “renewable energy” and high voltage cerebral “power”- through innovative initiatives by his understanding of issues, his openness to ideas and his promptness of response. Restructuring of the Rs.41000 crore dues of the SEBs, signing of agreements with so many States and setting up of Regulatory Commissions are important milestones.

The Electricity Bill 2001 tabled by you, Sir, in the last session of parliament is a big leap forward. This modern piece of legislation seeks to usher in competitiveness, efficiency, transparency and regulation in the system. The Bill is a great job but we all need to see that it succeeds – it flies!

Your commitment to achieve 100 per cent metering, compulsory energy audits, rural electrification and elimination of power thefts in the near future are indeed very significant. But to realize the promise of this commitment we need a definitive time frame for implementation - backed by micro management, constant monitoring and real time follow up.

After all any legislation can only provide us with a framework for reforms. Success at the ground level requires that an action plan be implemented on a time bound basis. More important there must be sufficient Will to Implement – this is most critical.

Power being a state subject, it is very important that your commitment and vision is shared by the state governments as well. This indeed is crucial for the success of the reform measures outlined by you. Today there are so many vested interests and beneficiaries of the spoils of the system. States continue to charge unrealistically low charges, from farmers and others, even when the long term disastrous consequences of this on all of us can be seen clearly. Any political party’s economic wisdom and statesmanship in this should not be allowed to become the rival political party’s ticket to political power and fortune. No individual can be expected to bell this cat unless with your lead the decision is taken jointly by all, ideally at the NDC. Otherwise power will continue to be in the news for all the wrong reasons and political parties will continue to support or oppose power reforms not on the terminal criteria of National Interest and Competitiveness but based on whether they are in government or part of the opposition. Competitive populism needs to be curbed and eliminated.

May I also touch on the critical issue of Employees and their interests while privatising distribution. For this we may need to create the right awareness among both politicians and workers. The possibility of redeployment / retaining of existing manpower could be explored.

In this context we in FICCI feel that the following should be taken up on an urgent basis to revive the power sector;

• Enable the power sector to run on commercial principles and as profit centres
  Take subsidies away from the SEBs and move it to the state budgets. Today they lose Rs.15000 crores annually and their Return on Investment is – 19%. SEB’s should be made into commercially viable organisations and manageable profit centres. Target subsidies only at the very poor.
  
• Reduce the high levels of Transmission & Distribution losses in the system . Every year power worth Rs.20000 crores is pilfered and drastic improvement in the existing legislation against theft of power is needed. 100% Metering is a vital key to Power reforms including through electronic metering of high value consumers. Today less than 50% of power is metered and only 30% is paid for.
  
• Reduce the demand – supply gap by initiating a renovation and modernization drive of existing plants based on efficient micro management and accountability
  Discourage States from adding to costs of captive power generation through all kind of levies.
  
• Make the regulatory commissions truly autonomous and induce regulatory certainty into the system for private investors to make long-term investments.
  Expedite the Fiscal Responsibility legislation which would hasten a more pragmatic approach to power reforms too.
  

Sir, we at FICCI believe that Distribution Reforms, the theme of this conference, hold the key to the future vitality of the power sector. Though India opened up its power sector for private participation about a decade ago, few investors have come forward to invest in distribution. With unsustainable levels of T&D losses—in some states like Delhi and UP these run to over 50 per cent – and with no guarantee of an assured revenue stream in the distribution business, it is not surprising that private investors have shown little interest in distributing power.

The presence of the ‘single buyer’ model, in Orissa where the state-owned transmission company is unable to recover dues from the privatised distribution company has created roadblocks. It may be desirable to examine whether the Orissa model of reform that looks at setting up of Regulatory Commissions, unbundling and corporatisation of the SEB and privatisation of distribution circles is the best way of achieving our goals. Some elements of this model may provide ‘necessary’ conditions for success but these may not be the ones that are “sufficient”. After all we must learn some lessons from Orissa.

Perhaps we also need to reflect on the motivation for reforms. Reforms in the developed countries were driven by a desire to attain higher levels of efficiency, lower tariffs and better services to the consumer by introduction of competition in the various sub-sectors of the industry. But in our case, it is the financial bankruptcy of the power sector and increasing demand-supply gaps that is pushing us towards reforms. One hopes that benefits and improvement in quality of service do not become by-products or secondary to the basis objective of attracting private capital.

Eventually we will have to move towards injecting competition into the system.

Another important issue is of Rural Distribution, as this will be critical in the context of private sector participation in distribution. Since significant upfront investments are required in the rural areas, which do not have immediate pay-back potential – prospective investors in the rural areas need a special package of incentives. Also political / socio-economic compulsions should not be allowed to come in the way of the licensees right to enforce commercial discipline on defaulting rural consumers. Setting up of Rural Cooperatives for distribution and making them profit centers could be a viable strategy. Such experiments are already being implemented in the state of Andhra Pradesh.

Sir, your Vision – your Blueprint and Road Map to add another 100,000 MW in the next 10 years would need resources of US $200 billion. To attract such resources, it is necessary that quite apart from appropriate structures and incentives the environment for speedy reforms is triggered by mobilising public awareness and opinion. FICCI strongly endorses your plan to have Road Shows and would support it in any way we can.

I would appeal to the Media that once they are convinced about the contents of these Road Shows they may kindly continue to lend their shoulders fully for this national cause – their role would be vital if we have to achieve the tectonic shift for creating the political will for implementation and to see that it succeeds towards making India a World Economic Power. After all, amongst other things, Indian Industry pays thrice as such for power than the Chinese do – how can it compete in the long term. This has to change.

Today & tomorrow eminent speakers from across the world will deliberate on the key elements of Distribution Reforms and share their experiences with us. I am sure the proceedings emanating from this conference will be useful to us in learning from our today and looking towards a brighter tomorrow.

Thank you.