Linking aid to power sector reforms

Voice of Electricity Workers

July - September 2001

THE CENTRE PRESSURISING THE STATES

BY LINKING AID TO POWER SECTOR REFORMS

The centre has chosen the power sector reforms in the states as it stick to offer incentives finances under the Central fiscal reform linked assistance scheme.The Union government’s financial package for state governments which has been based on the state governments’ reform initiatives will depend largely on the power sector developments in the state.States who do not opt for immediate power sector reforms may even fail to get their share of the incentives if they fail to get their act together.Tackling the tricky power situation is one of the key milestones that the states are required to cross to be eligible for the Central fiscal reforms linked assistance.

While the finance ministry has laid out board strictures on reforms in this sector, the power ministry will soon come out with detailed reform milestones and objectives that will be monitored regularly.The power ministry has already set up there committees to monitor various aspects of the reforms at the state level.Also, it has signed memoranda of understanding with 13 state governments to carry out power sector reforms at the state level. The financial assistance that the states will receive will be linked to the implementation of these reform schedules.The primary concern area is to reduce the negative contribution of state electricity boards to the state governments’ coffers. The finance ministry is also looking at ways and means towards setting right the dues settlement of SEBs, which are reeling because of nonpayment of outstanding.

States are also expected also expected to take the politically difficult decision of achieving an average tariff equal to the cost of power within two years.The finance ministry guidelines also call for setting up state Regulatory Electricity Commissions and implementing their rulings once they are created.The setting up of SERC will help the states to rationlise the tariff structure as tariffs henceforth will be based on commercial considerations and not political. The state governments will be required to provide budgetary support for any subsidies that they wish to provide for a special group of customers.The medium-term fiscal restructuring policy also calls for unbundling of basic services like generation, transmission and distribution. It has also favoured setting up of separate profit centers out of these businesses, sources said.

On the crucial issue of loss of revenue on account of T&D pilferage, the monitorable reforms objective is to bring the level down by at least 5 percent ever year. These initiatives by the finance ministry come at a time when the power ministry is making efforts to include as many states as possible in the reforming state list.Sources in the power ministry indicated that almost all states will sign up the memoranda of understanding by the end of the year.


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