WEAKNESSES AND THREATS TO IINDIAN POWER SECTOR:

• Poor infrastructure has led to heavy T&D losses. Old and poor transmission and

distribution network has led to frequent power outages and poor quality of power

• Lack of proper metering and theft has led to large scale losses. Only 51% of the power

generated is billed and only 41% is realized

• Moreover, Government provides power to agricultural sector at subsidized rates and

also free of cost in some states. All these factors have resulted in financial disorder of

the State Electricity Boards (SEBs).

• Restoration of SEBs financial health and improvement in their operating performance

continues to be a critical issue. The Government of India has signed a Memorandum

ofUnderstanding (MOU) with various states reflecting the joint commitment of centre andstates
to undertake reforms in a time bound manner

• Poor return to utilities, which affect their profitability and capacity to make further

investments

• Increasing gap between unit cost of supply & revenue, approximately Rs 1.10/ unit

• Managerial and financial inefficiencies in state sector utilities have adversely affected

capacity addition and systems improvement

• Non-availability of quality coal may hamper thermal plants’ efficiency in power

Generation

• Inability of SEBs to raise funds, as most of the SEBs is on the verge of bankruptcy due

to poor operational performance. Adding to the problems, SEBs need huge money to

measure up competition from efficient private players

• The major risk of privatizing a critical sector like power is the precedence of

commercial over public interest. Some of these interests that will take a back seatinclude
development of environment friendly generation and provision of electricity forrural areas. The
new Electricity Act does not provide any specific financial incentivesfor private players to
address public issues

• The SBEs which are right now holding 60% of total installed capacity, will be hit

adversely by some provisions of the new electricity act such as delicensing of generation and
open access for IPPs and CPPs, there by such units will take away themost lucrative customers
(like industrial and commercial users) from the SEBs. Thiswill not only affect SEB’s but also the
entire power sector for near term.

• While India has made impressive progress in the Power Sector since independence, it has
not been sufficient. In terms of generation, while new capacity has been added,demand
has far out stripped the supply leading to a widening gap. The primary reason ofthe
widening gap lies in the distribution link in the value chain. The generation companies
have not found it easy to recover their dues from their biggest buyers,mainly the State
Electricity Boards (SEBs). SEBs suffer huge financial losses every year due to power
theft and ineffective practices of billing and collection. Apparently, the losses have
reached an alarming Rs. 26,000 crore. It is clear that the biggest fundamental issue
hampering the viability of the Indian Power Sector is the sheervolume or level of
Transmission and Distribution (T&D) losses that amount to 25%, avery high level by any
standard. To make the matter worse, indirect calculations show T&D losses to be much
higher in the range of 40-50%. In addition, the distributionsystem in India is often
characterized by inefficiency, low productivity, frequentinterruption in supply and poor
voltage.

• The power supply position is characterized by shortages both in terms of demand met
during peak time and overall energy supply. The peaking shortage is much more in every
region and it is about 12% on all India basis. The energy shortages on regional basis are
varying in magnitude and overall shortage on all India basis is about 7%. To meet the
growing demand and shortages encountered in various regions, generation capacity is
required to be doubled in 10 years, so that the total demand both in terms of peak and
energy can be met.

• The decade of the 1990s also saw the gradual deterioration of the financial health of State
Electricity Boards. Towards the latter half of 1990s, it was apparent that thedeterioration
in the finances of the State Electricity Boards was becomingunsustainable. Restoration of
the financial health of the State Electricity Boards / StateUtilities was recognized as the
most critical challenge facing the sector. In this context it becomes clear that the
 distribution sector needed urgent attention if the trend ofdeteriorating financial health had
to be reversed. The reversal would need a combination of the following key measures:-
a.Control of theft of electricity
b.Reduction in the cost of supply through reduction in technical losses.
c.Better management and lowering the cost of generation
d.Payment of user charge and Tariff rationalization.

Conclusion:
Power is one of the prime movers of economic development. The basic responsibility
ofpower supply industry is to provide adequate electricity at economic cost, while
ensuringreliability and quality of supply. Significant impetus by successive Governments has
resultedin increase in capacity from 1,300 MW during independence to more than 100,000
MWtoday. Along with the growth in installed generation capacity, there has also been
aphenomenal increase in the transmission and distribution capacity. However, despite
thesignificant progress in capacity addition, the demand for electricity continues to
outstripsupply with the result that energy and peaking shortages continue to plaque the economy.
Theper capita consumption is among the lowest in the World at 408 kwh/year (as on 2001).
With responsibility for electricity supply shared constitutionally between the central
government and the states, the Government of India has placed increased emphasis onimproving
the efficiency of supply, consumption, and pricing of electricity. Significant reforms are being
undertaken in power sector management and financing at the state level.
The financial weakness of the SEBs has been one of the major stumbling blocks in
achieving financial closure of Independent Power Producers (IPPs). The Government of India,
with World Bank assistance, has been encouraging the states to undertake in depth power sector
reforms. This involves distancing the state government from operation of the power sector,
establishing an independent regulatory framework for the sector, progressively reducing
subsidies and restoring the creditworthiness of the utilities through financial restructuring and
cost-recovery based tariffs, and divesting existing distribution assets to private operators.
 The Indian power sector is undergoing a crucial phase of transition. Both the Central
and State governments are actively engaged in finding viable solutions to achieve sustainable
development of the power sector. As of now, regulation, rapid capacity addition, and SEB-
reform, with a specific focus on improving revenues from the distribution segment, are emerging
as important areas of reforms in the sector.
Major Findings:-
• Most of the SEBs though are supported by state government, are
running under loss. This is because of power theft, transmission
losses, use of conventional methods for power generation and
transmission and out dated management policies.
• Indian power sector has been witnessing a wide demand – supply
gap. Although electricity generation has increased substantially, it
has not been able to meet the demand.
• India is going to build an additional capacity of 1 lakh MW by
2012 including private sector contribution.

India possesses a vast opportunity to grow in the field of power generation,

transmission, and distribution. The target of over 150,000 MW of hydel power
germination is yet to be achieved. By the year 2012, India requires an additional
100,000 MW of generation capacity. A huge capital investment is required to meet
this target. This has welcomed numerous power generation, transmission, and
distribution companies across the globe to establish their operations in the country
under the famous PPP (public-private partnership) programmes. The power sector
is still experiencing a large demand-supply gap. This has called for an effective
consideration of some of strategic initiatives. There are strong opportunities in
transmission network ventures - additional 60,000 circuit kilometers of
transmission network is expected by 2012 with a total investment opportunity of
about US$ 200 billion.