SEBs reforms unlikely without political will: Suresh Prabhu
Published on Tue, Jul 19, 2011

The debt ridden state electricity distribution companies have more trouble in store. Many banks are set to stop lending to loss making distribution companies. Some banks are even considering putting limits on their exposure to these companies. Banks are estimated to have lent a total of Rs 1 lakh crore to different state electricity distribution companies.

Speaking to CNBC-TV18 on the implications of the move, Suresh Prabhu, former power minister during the NDA regime, said that the problem with sub-transmission distribution is where the maximum value addition takes place. So almost 85-90% of the value addition to the power channel already happened and then you lose money at a sub-transmission and distribution end, which is a serious issue according to him.

“We definitely need political will to bring reforms in state electricity boards (SEBs) and that is how we have started the process of reforming State Electricity Boards in 2003,” he added.

Below is a verbatim transcript of his interview with CNBC-TV18's Shereen Bhan. Also watch the accompanying video.

Q: I don’t think you will be surprised by the data that I have just read out. We have known about the problems within India’s power sector specifically with the state of SEBs. There are a handful of SEBs in India that are doing reasonably well, that are perhaps not loss making. Are you even surprised by what I am telling you at this point?

A: It was really coming for last so many years because we are all the time focusing on electricity generation and that was really not required to be focused because generation was happening and generation is happening today only because of the electricity act 2003 which I had introduced into the parliament. Because of the act there is so much of capacity getting added, private sector is coming in.

The share of private sector is rising in terms of generation, so this was already going to happen but when you have huge generation like this if you don’t have attendant changes done in the sub-transmission and distribution, I would not even say transmission and distribution because transmission is something different and in the case of sub-transmission and distribution, you are inviting trouble.

If you are going to put more electricity to the same channel with the same system and if the state electricity boards are not recovering as much as they should be recovering, then you are going to put more volumes into it as you are inviting trouble and that is what has happened now that the banks have realized. Now the bottomline of the state electricity board is so bad that they are not just bottomline, it is bottomless and therefore, it is like a bottomless pit, money is just going away and now that’s a problem.

Q: So do you think we are on the brink of a disaster, on the brink of a crisis because as we just pointed out in our story, banks are now trying to limit their exposure to SEB’s. They are already worried about the kind of exposure that they currently have to SEB’s if they stop lending to SEB’s. Are we on the brink of a catastrophe really as far as this space is concerned?

A: Basically the problem with sub-transmission distribution is where the maximum value addition takes place because generation has happened, transmission has taken place. So almost 85-90% of the value addition to the power channel already happened and then you lose money at a sub-transmission and distribution end. So it’s not just a loss, but a loss of a much value added chain. So this is a really serious issue. Now if you don’t fix this problem very quickly, focus on sub-transmission and distribution, do not wash the hands off by saying that this is a state issue and the Central Government has nothing to do with it. It’s a center issue.

It’s the country’s issue because if you don’t fix this problem, even the capacity that is getting added now, the generation is an upstream issue. All that will be now under peril as most of this capacity addition has signed power purchase agreement with the same utility which is now becoming bankrupt. So if something like this happens, we will have a disaster in the making of a much larger magnitude than what we can even envisage it today.

We really need to fix this right now and there is no time left really to do that. In fact, when I was the minister in 2002, I had prepared a blue print for power sector development in which we are laying more focus on sub-transmission and distribution. We started accelerated power and reformed development program. We created a huge amount of money despite the planning commission not agreeing with that because they said it’s a state issue.

Q: What will this really mean now for private sector participation in this sector if we are on the brink of this sort of a catastrophe and you pointed out that it’s not just a state government’s problem it is also a problem for the center to address? What more can the center do because at the end of the day transmission and distribution losses is the headache of the state government and where you have seen political leadership in states like Gujarat where T&D (Transmission and Distribution) losses have been brought down it really depends on the local leadership, doesn’t it?

A: Absolutely right, in fact it is a state issue, leadership issue but central government must support it. What can be done now? One, what we had started doing then, you start taking distribution circles which are fewer than the revenue districts in India – less than 600 power circle. Try to fix its power circle very quickly because that’s what would mean is that each distribution transformer, that was my idea, if you can make it commercially viable because distribution transformer is the lowest end from where there is a interface between customer and the electricity utility.

So if you can fix that try and to make it possible and probably technology money everything can be put in that, it will be good. Secondly, you must talk about open access, that’s something very critical because the consumer doesn’t get to choose his supplier. And whoever is generating electricity, you must ask them to also distribute and that’s the provision in the electricity act itself, there is an open access which is a very important part of this entire reform process which has not been addressed.

Q: You started the process of reforming State Electricity Boards in 2003. We are in 2011. We have got a bit at least six states which are currently on the verge of disaster. Do you really think SEB’s reform is possible without strong political will?

A: We definitely need political will. In fact, in 2002 we had embarked up on a very ambitious program of actually cleaning the balance sheet of all the State Electricity Boards. We came in with the Tripartite Policy in which we said that all the State Electricity Board dues were actually taken off the balance sheet and we cleaned the balance sheet as much as possible.

In the process we also actually strengthened the financials of central utilities like NTPC. Even Coal India which was not under me but the Tripartite Agreement benefited them as well. We did all that during that time but today I’m really very sorry to see that what we started just got frittered away but now we are actually creating a crisis for ourselves by just neglecting something like this.