Power distribution should be the focus for the next Five Year Plan

Power distribution utilities face an annual cash deficit of Rs 70,000 crs which is already giving sleepless nights to bankers, equity investors and generating companies. Further low power tariffs, mis-management in  Power Board mis-matched reforms together with high transmission & distribution losses ,pilferage of energy adding to the misery in the sector .

State utilities have already accumulated huge losses and even private firms have defaulted on payments to power producers as tariffs are low – a situation that is discouraging fresh investment in the power sector and making new capacity of 35,000 mw unviable.

Industry leaders say the distribution sector urgently needs reform. “The country has made good progress in power generation in recent years. The focus for the next Five-Year Plan should be on improving distribution, which is the biggest problem in the power sector.The poor financial health of state utilities is obstructing the entire power sector. State utilities already have a cumulative loss of Rs 80,000 crore and are depending heavily on short-term borrowings from banks. Losses are projected to rise to Rs 1,15,000 crore in three years.

The mess in the distribution sector is a major obstacle for growth in power generation as it upsets the revenue streams for power producers. Industry officials say the country needs new generation capacity as there is a severe shortage of power, but new plants would need remunerative tariffs. Power plants that depend on imported coal will be worst hit. New capacity of 12,600 mw will be totally unviable because tariffs are too low to justify imported coal and domestic fuel is already in short supply. Apart from bankers, who are staring at potential Non Performing Assets (NPAs), even potential equity investors are worried.