Power minister Piyush Goyal said on Tuesday that the government has dispelled the air of negativity surrounding the electricity sector, and replaced it with a sense of optimism by implementing a raft of reforms. Decisive steps taken across sectors have resulted in surplus power, fiscal discipline in utilities, sufficient coal availability and unprecedented growth in the clean energy market, Goyal said in an interview. “We have been able to change the mindset of this country from despondency to confidence. Earlier, the story was of shortages of power and coal, of a weak system, and of failing distribution companies which are perpetually in losses—a story of negativity. Today, the sector is full of optimism and positivity,” Goyal said.
Goyal’s assessment of the sector, ahead of the National Democratic Alliance (NDA) government starting its fourth year in office on 26 May, hints at more policy action, taking state governments on board, and leveraging the scale and financial resources of large central public sector companies. Earlier in the day, Prime Minister Narendra Modi, who took stock of progress in various schemes in the power, oil and gas and housing sectors, asked his colleagues to focus on 100 districts which are the worst performers in different schemes, an official statement said. Goyal has been working on turning around debt-ridden state power distribution companies and lowering the operational costs of conventional power plants while trying to achieve the country’s climate change goal of becoming a low carbon economy.
“India is looked upon as a world leader now in the power, renewable energy and infrastructure sectors. The India story is gaining unparalleled sense of confidence that was never there,” Goyal said. According to data available from the power ministry, the compound annual growth rate of power tariffs was 3.2% in the last two years, compared to 5.95% in previous years, indicating that energy costs grew at a lower late. Also, the amount of coal required to generate a unit of electricity has decreased by 8% in the last three years to 0.63kg in 2016-17, explained a government official, who asked not to be named. India’s capacity addition in renewable energy was for the first time higher than that of conventional power in 2016-17.
However, resolving the non-performing assets in the power sector, which is part of the Rs9.64 trillion of stressed assets in the banking sector, will depend on how banks implement the recent changes in the Banking Regulation Act. The amendment gives more powers to the Reserve Bank of India to facilitate a resolution. State-owned companies in the power sector are likely to examine the viability of purchasing any private sector power company undergoing bankruptcy proceedings if the price is attractive. An industry expert, who asked not to be named, said that while distribution companies (DISCOMS) are making efforts to improve their operational efficiency and cut losses as per the milestones set under the turnaround scheme Ujwal DISCOM Assurance Yojana (UDAY), states should be open to privatizing those utilities which are not able to reduce red ink.
Improving quality of power is another area where utilities have to measure up, this person added. The government has set a deadline of December 2018 to achieve the goal of uninterrupted power for all. Another expert said power distribution reform is likely to remain high on the agenda. “A few states took the bold step of getting in private sector expertise and innovation into distribution through the franchisee model, but it’s a drop in the ocean,” said Kameswara Rao, leader of the energy utilities and mining practice at PricewaterhouseCoopers in India. “If state utilities pursue this more actively, they can gain financially through profit sharing, just like states are gaining through mineral auctions.” Rao added that by tackling higher costs and losses in the retail distribution and supply business, over 22-25% could be saved in costs.