Foreign investors consider energy and logistics costs in countries very carefully while deciding on investment destinations. To attract Western, Japanese and Korean companies leaving China in the wake of the Covid-19 pandemic, India Inc. Group Founder and CEO Manoj Ladwa argues in this fourth of a six part series of articles, that India must privatise its power distribution and urgently reform its logistics networks.
India's power sector needs thorough structural reforms.
India must privatise its power distribution and bring in laws to impose stiff political and financial costs on power thieves and their patrons.
This will eliminate political interference, hasten the pace of building highways, facilitate inland water transport infrastructure and ease procedures that cause delays.
India produces more electricity than it needs but many Indians still face long hours of power cuts. That′s because its supply is still hindered by inefficient state-owned transmission and distribution companies (so called “discoms”).
Nearly, 20 per cent of power generated is still lost -- stolen by politically powerful interest groups or simply lost due to poorly maintained transmission infrastructure -- while being distributed, but power distributors are unable or unwilling to take necessary measures to prevent this. They're also unable to make adequate investments due to their poor financial performance.
On Wednesday, Indian Finance Minister Nirmala Sitharaman tried to address this issue by giving discoms a $12-billion liquidity boost. This will hopefully ensure that power generating companies are paid on time, thus, maintaining the health of the entire sector.
But this is, at best, a medium-term palliative. India's power sector needs thorough structural reforms. While power generation capacity is now substantially privately owned, the state government-owned Electricity Boards remain, with only a few exceptions, near monopoly buyers and distributors of electricity.
They arbitrarily make politically-motivated demands to renegotiate existing power purchase agreements, delay and/or renege on payments of dues against power purchases, distribute free or highly subsidised power to powerful interest groups and so, seriously constrain the capacity of power generators to service their own financial obligations, including debt repayments. As a result, a large portion of delinquent loans in the Indian banking system emanate from the power sector.