World Bank moots prepaid metering for power

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If prepaid Sim cards can work out superbly well in India’s telecom sector, then why not introduce prepaid metering in power distribution? Customers, even those at the lower end of the spectrum, may not have a problem paying as long as power supply is better and assured.

An innovative prepaid metering scheme could provide clues to tide over power sector losses mounting to a whopping Rs 1,40,000 crore.

World Bank country director Onno Ruhl on Tuesday told media that as a model to stem losses in the power sector, it has worked. At the launch of the bank report entitled “More power in India: The challenge of distribution”, he said that introduction of prepaid metering in Nigeria has proved to be successful in reducing losses despite being priced higher as consumers are willing to pay more for better and assured power supply.

The Rs 1,40,000 crore accumulated losses calculated till 2011, works out to be $25 billion. They are overwhelmingly concentrated among distribution companies (discoms), bundled utilities, state electricity boards and state power departments.

Citing the example of telecom sector where 90 per cent of mobile phones use prepaid Sim cards, Ruhl suggested the model could be worth trying out in India’s power distribution sector.

Noting that the financial health of the sector is “fragile” in India limiting its ability to invest in delivering better services, the report said huge losses in the power sector had led to heavy borrowing as a result of which power sector debt had reached Rs 3.5 lakh crore ($77 billion), which was as much as 5 per cent of India’s GDP surging towards $2 trillion.

Suggesting sweeping reforms in power distribution, the bank report said this was necessary to bring back the country on a high growth path and meet the goal of access to electricity to all by 2019. India’s 800 kwh annual per capita consumption is among the lowest in the world.

The report is a review of the Indian power sector across key areas of access, utility performance, and financial sustainability. It has identified electricity distribution to the end consumer as the weak link in the sector.

The report suggests freeing utilities and regulators from external interference, increasing accountability and enhancing competition in the sector to move it to a higher level of service delivery.

“Revitalising the power sector by improving the performance of distribution utilities and ensuring that players in the sector are subjected to financial discipline, is the need of the hour,” Ruhl said.

By tackling the losses through a focused approach, it should be possible to make a marked difference in sector performance, the report said.

The report said the problem is concentrated in a handful of states. Over 60 per cent of the sector’s accumulated losses in 2011 came from Uttar Pradesh, Madhya Pradesh, Tamil Nadu and Jharkhand. UP alone accounted for 40 per cent of this accumulated losses.

Over the last two decades, the sector has needed periodic rescues from the central government – a bailout of Rs 35,000 crore in 2001 and a restructuring package of Rs 1.9 lakh crore ($19 billion) announced in 2012.

“Two decades after the initiation of reforms, an inefficient, loss-making distribution segment and inadequate and unreliable power supply are major constraints to India’s aspirations for growth,” Ruhl said.

Several factors have contributed to these losses. The cost to discoms of purchasing power has risen faster than revenues, primarily due to fuel shortages and the need to import expensive fuel.

Rising interest expenses have contributed to rising costs, the report said, adding tariffs have not kept pace with costs over the years. Under collection of bills and delayed collection of payments, coupled with the fact that more than one-fifth of electricity is lost by utilities, does not lead to generation of revenues.

The report also recommended that state governments should pay subsidies transparently, fully and on time when they mandate free power supply. The must also improve the targeting of subsidies so resources are not wasted and actually reach the poor.


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