Silence is killing

Budget makes no mention of pooled pricing for natural gas

Finance minister Pranab Mukherjee has proposed key concessions like the removal of imported duty on coal and natural gas and a reduction in the withholding tax rate on interest payments for external commercial borrowing (ECB) loans to the power sector. These measures are expected to check the rising electricity tariff. However, the Budget does not suggest a strategy to turn around the power distribution sector, where key business decisions like tariff hike are still dictated by political considerations than economic prudence. Unless the problems in the distribution area are fixed, the concessions offered by the finance minister may not be effective in building investor confidence.

Further, the Budget has also failed to give an assurance on implementation of pooled pricing for both imported and natural gas. Given the stagnation in the domestic production of these fuels, a decision on pooled pricing was needed urgently.

But it seems that the Centre continues to shy away from its responsibility to get states to expedite power sector reforms. This is unfortunate given that distribution is the only point of revenue for investors to get their investment back. The Shunglu committee set up by the Centre to study factors impacting the financial health of state power utilities has recommended floating a special purpose vehicle to take over the bad loans of discoms against a guarantee of repayment by state governments. The industry was expecting an announcement to this effect in the Budget. But that has not happened.

But because of the widespread practice of state governments, instead of regulators, deciding on tariff revisions, the distribution has become a financial black hole. The combined losses of the power distribution utilities have accumulated to more than R1.5 lakh crore.

In the absence of tariff revisions. states were using bank loans to finance the losses of discoms. But banks and financial institutions have now stopped lending short-term loans to the discoms, creating a cash crunch for them. Several states have approached the Centre for financial assistance to bail out their debt-ridden discoms.

The government has set up a committee under BK Chaturvedi, member (energy), Planning Commission, to suggest ways to improve the financial health of state power utilities. The committee was asked to consider the findings and recommendations made by the Shunglu committee.

It is understood that the Chaturvedi committee submitted its recommendations to the finance minister well in time for him to incorporate the same in the Budget.

The Planning Commission has suggested a switchover to pooled pricing for coal and natural gas to help absorb the high cost of imports. While the finance minister has proposed the withdrawal of import duty on these fuels, there is no mention of pooled pricing, which is the only way to distribute the burden of pricey imports across the industry.

On the positive side, several initiatives have been taken in recent weeks at the intervention of Prime Minister Manmohan Singh to resolve pressing power sector issues. The suggestions received from the committee of secretaries led by Pulok Chatterjee, the PM's principal secretary, have come in handy for the PM here. One hopes that he picks up from where the Budget has left on the issue of pooled pricing.