Report of Indian Institute of Public Administration ... - Ministry of Power

A. BACKGROUND
EXECUTIVE SUMMARY
A1 The pre-eminent role of ‘electricity’ in the growth of a nation’s economy is
well-established. To sustain the envisaged GDP growth rate of more than eight
per cent, electricity generation has also to grow at about the same rate. The
Tenth Five Year Plan aims at a generating capacity addition of 41,110 MW.
However, the achievement is likely to be about 75 per cent of the target. The
total installed generating capacity in the country at the end of 2005-06 was
1,24,287 MW. Though India ranks fifth in the world in terms of electricity
generated, the annual per capita consumption is a miniscule, 631.5 kWh (2005-
06 provisional figure), one of the lowest in the world. The world average of
annual per capita consumption in 2003 was 2,429 kWh.
A2 The current Five Year Plan emphasises the need for power sector reforms
through ‘restructuring’ of the State Electricity Boards (SEBs), by establishing
regulatory mechanisms, and by effecting overall improvement of the physical
and financial attributes of the SEBs. The enactment of the Electricity Act, 2003
(EA, 2003) was a milestone in the development of the power sector, and aims
at, inter-alia, supply of electricity to all citizens at reasonable tariff, provision
of transparent subsidies, establishment of Electricity Regulatory Commissions
and Appellate Tribunal, and promotion of policies conducive to the growth of
the electricity sector. The EA, 2003 has, in particular, made ‘restructuring’ of
SEBs, on functional basis, mandatory.
A3 SEBs have been in existence for over 40 to 50 years, and have had several
achievements to their credit. However, on the whole, SEBs had become
unviable and unprofitable, with heavy accumulated losses and liabilities. They
were blamed for poor service delivery, mainly due to inefficient planning and
sluggish execution of capital works, inadequate maintenance, low generation
[low Plant Load Factor (PLF)], high Transmission and Distribution (T&D)
Losses, erratic supply to consumers, and perennial financial losses. Such inept
and consistently sub-optimal performance on all fronts by the SEBs in general
convinced the planners and policy-makers about the need to reorganise the
SEBs into smaller, viable, uni-functional Utilities, with clearly defined
jurisdictions and tasks, as part of the power sector reforms. This hypothesis
followed the realisation that the earlier attempts at reforming the generation
segment of the electricity value chain had not achieved the desired results; and
reforming the distribution segment was considered essential for improving the