Prime Minister of India - Dr. Manmohan Singh

PM's address at the Conference of Chief Ministers on the Power Sector

"I am very happy to be here at this conference on the power sector. This is a conference which we have been wanting to convene for some time now. And there is a reason behind this. In the last few years, our economy has been growing at a rapid and impressive pace, averaging over 8.5%. Our manufacturing and services sectors are growing even faster, logging double digit growth rates, and in the process, creating new jobs and livelihoods. This is a result of the favourable climate that has been created for investment and enterprise in our country.

However, there are some areas of the economy that are a cause for serious concern. If one sits back and analyses areas which can be potential bottlenecks in our attempts to achieve rapid growth and get rid of chronic poverty, one can easily identify availability of power as one of the key areas of concern. The others are the revitalization of agriculture and the availability skilled manpower. Tomorrow we meet in the NDC to discuss fresh approaches to revitalization of vital agriculture sector. Today, we focus on finding practical, pragmatic but effective solutions to the problems in the power sector.

Electricity is vital for sustained economic growth. If we expect our economy to keep growing at 9-10% p.a., we need a commensurate growth in power supply. The power sector has made good progress over the past few years. It has also seen very significant changes. Utilities have been restructured. A solid regulatory foundation has been laid. There is much greater public participation in tariff-setting. Tariff distortions have gone down. Having done all this, we have not been able to make a decisive breakthrough in ensuring high and sustainable rates of growth of this sector and improving its financial health. Hence, the need for this conference.

Today, the scene in the power sector does not look very promising. We are having an energy shortage of around 10% and a peaking shortage of over 13%. There are states where peaking shortages touch 25%. Shortages of this magnitude can be a serious impediment to sustained economic activity. The problem has been intensified by poor progress in additions to capacity generation, in cutting down losses and in reducing wasteful consumption. Further, the cost at which power is being supplied is not on par with the cost in other countries. I am, therefore, of the firm opinion that the Centre and the States have a common obligation to sit together and work out practical, pragmatic solutions to all problems in the power sector - solutions for the short term and solutions for the medium term.

I am very happy that my colleague, the Hon'ble Union Power Minister has taken the initiative to organize this conference with a focus on a few key areas where concerted action by us can make a real difference in years to come. Traditionally, CM's Conferences in this sector have shown the way. The present regulatory structure arose out of one such conference of Chief Ministers. Yet another conference set the road map for financial restructuring of SEB dues. There are, therefore, high expectations from this conference as well. We need to collectively apply our minds to resolving the problems of this sector and resolving them rapidly enough to make power a self-sustaining, fast growing sector of our economy.

If one were to prioritize the issues to be discussed today, I would begin with T&D losses. The current level of losses in transmission and distribution, ranging between 30-45% in many states, threatens the financial health of this sector. No meaningful development of power sector would be feasible with these levels of losses. A large proportion of these losses are simply due to theft. Theft is the cancer of the power sector. We need to come heavily down on it as it is seriously affecting the financial viability of the sector as a whole. Honest consumers who pay their electricity bills regularly bear the brunt of the cost of theft by other unscrupulous consumers. Some states have shown determination for controlling theft and have achieved praiseworthy results. We need, therefore, to launch a campaign against theft of electricity and get offenders effectively punished.

We need a focused effort to reduce T&D losses and bring them within reasonable limits in a reasonably short time frame. Along with theft control measures, we need to upgrade the transmission and distribution system in a time-bound manner. This is an important effort as the financial viability of the sector and making it a commercial proposition depends on success of this initiative. The Central Government would provide financial assistance to States that are able to reduce these losses to agreed levels. I take this opportunity to urge all Chief Ministers to resolve at this forum to reduce these losses to acceptable levels. The Centre will support the initiative through a revised Accelerated Power Development and Reforms Programme (APDRP) scheme through which we will reward performing states by converting loans to grants in an appropriate manner on achieving certain benchmark results.

One area in which performance has not been up to the mark is in capacity addition. In the 10th Plan, capacity addition has been around 50% of the target. This reflects poorly on the planning process as well as the implementation capability of the various agencies in the States and at the Centre, who were entrusted this task. I feel that the time has come when we need to take a very close and hard look at the process of project implementation and project execution in the power sector. In fact, time is running out, and unless we are able to arrest the growing shortages, the effect on our economy and our policy may well prove disastrous.

There is, therefore, need for a concerted effort by all the stakeholders to address this issue. We need a crash programme for capacity addition aimed at eliminating shortages latest by the year 2012. We need to take steps to meet these capacity addition targets without any slippages or overruns. The targets are no doubt ambitious and a 'business as usual' approach will not suffice. We need specialized project management and monitoring capabilities to ensure timely commissioning of projects. This conference should address this issue.

The investment needs, both in capacity addition and in upgrading the transmission and distribution systems, are indeed huge. One estimate has put the figure at over Rs 600,000 crores. This Finance Ministry and the Planning Commission would help evolve arrangements that would enable States to fund these projects on a sustainable basis. Given the financial constraints, it would be unrealistic to rely totally on either external or on public funding. There has to be a mix. The public sector would have to generate a fair amount of internal resources. This will have to be supplemented by attracting sufficient private investment if we have to have any realistic hope of achieving our targets.

If there is one factor which differentiates the Power sector from, say, the Telecom sector, it has been its inability to attract private investment on a significant scale. I think that this is a serious issue that needs to be considered. Why are we unable to attract private investment? Are there systemic or structural issues that need to be addressed in order to make the power sector viable and capable of providing decent returns to our investors?

The key to attracting investment, particularly from the private sector, lies in ensuring open access to consumers. It will encourage investment. It will also put competitive pressure on the incumbent utility. Some steps have been taken to operationalise open access, though the extent of progress thus far has not been satisfactory. Lack of competition results in inefficiency, which in turn manifests itself in the form of high tariffs, poor standards of consumer service and low internal resource mobilization of the utility. I will give you one example of what competitive tariff based bidding can achieve. A conscious decision to move away from cost plus tariffs towards competitive tariffs in Ultra Mega Power Projects is going to result in substantial tariff reductions.

Open access and competition are the key to improved supply and greater investment. We have to look closely at all regulations to ensure that there is 'Open Access' in transmission and distribution. State policy has to proactively encourage the utilization of transmission and distribution corridors to ensure the free flow of power to any consumer who may be willing to contract for the power. States need to actively encourage bulk consumers to source their requirements from alternative suppliers so as to increase the total availability of electricity in the system, especially for the household and farm sector. To achieve this objective, the cross-subsidy surcharge should be fixed at a reasonable level. If you all agree, the Central Government can consider incentivising this through appropriate allocations of unallocated power at its disposal.

Universal rural electrification is one of the goals of our flagship programme, Bharat Nirman. I am proud to tell you that our Government has made very significant changes in the Electricity Act. We have recognized that the needs of the poor, rural people and agriculture require greater consideration. I must congratulate Shindeji and the Chief Ministers for the rural electrification efforts under Bharat Nirman. You have electrified nearly 40,000 villages in just two years. This is in comparison to just 10,000 villages in the entire span of 9th Plan. I hope we continue to work on this initiative on a war footing and reach electricity to all un-electrified villages by the year 2009. We, however, need to focus on development of appropriate revenue models for rural areas, protection of rural electrification assets and most importantly, deliver electricity through the wires!

The Power Sector in our country has come a long way. The basic legal and organizational structure is now in place. It is time, therefore, to move ahead. It is time, therefore, to get down to the task of improving the performance of this vital sector. It is time to apply ourselves collectively to ensure that power shortages are a thing of the past. It is time to ensure that people get good quality power reliably and at a competitive price. It is time to see how we can reach any subsidies to the genuinely needy and poor. Just as the states need to move forward on reforms, the Centre too should reform itself. The Centre cannot become a votary of Central Power Utilities and a protector of their interests alone. It needs to play a balanced role in the development of all entities - Central, State and Private. The Centre must, therefore, lead by example. For example, inter-state transmission needs to be truly opened up to competition and a separate and independent government entity to control the National Load Despatch Centre should be considered.

Our goals cannot be attained without taking hard and immediate decisions for the larger benefit of the country and our citizens. In this context, on can hardly over emphasise the need to have a national mission on conservation of energy in our country. If we fail to act now on various aspects that I have mentioned, as we should ensure, posterity may not forgive us. Our Government is determined to show the way and hold the hand of every State of our union to usher in an era of uninterrupted power supply in the country. We must act here and right now and I am confident that in this room today, we have assembled a group of men and women whose mindset, whose motivation and whose collective wills can make a great deal of difference to what happens to our economy and our polity in the next five or ten years. "