Unshackle power PSUs
The government needs to provide functional autonomy to power PSUs like NTPC, NHPC and Powergrid on a par with private players if it wants them to keep up the edge in a competitive environment and generate wealth. With the existing level of operational freedom, these PSUs cannot be expected to compete with the private sector on an equal footing.
The Central Electricity Regulatory Commission (CERC) has recommended switching over to mandatory tariff-based bidding for allocation of power projects from January 2011. While implementation of the proposed policy would help check the rising electricity tariffs in the country to some extent, it could also hurt power sector PSUs, which lack operational flexibility available to private players.
India has envisaged ambitious capacity addition in the power sector in the next few years. But state-owned generators wouldn’t be able to mobilise resources for such massive capacity addition programmes on their own. Hence, the private sector is being given a large role in capacity addition.
The government has envisaged implementing a mandatory tariff-based bidding regime to attract private investment in the sector. From that perspective, tariff-based bidding has been quite successful.
Through competitive bidding, the government has successfully allocated four ultra mega power projects that entail an investment of over $16 billion. Tariff quotes received for these projects are quite competitive. The tariff-based bidding experience of states for procuring power has also been encouraging. States could reduce their power purchase cost by inviting bids.
Private players have dominated the tariff-based bidding held so far, winning all the four ultra mega power projects. India’s largest thermal power generator, NTPC, has failed to bag even a single ultra mega power project. Private players have also dominated bidding held for the allocation of power transmission projects.
These power PSUs could see a drastic erosion in their profits and market value if they were to be exposed to full-throated competition without the required level of empowerment. That would be unfortunate given that a lot of public money has been invested in these companies.
If the government wants to protect public investment, it must allow power PSUs to function like corporate entities, free from operational constraints.
Besides, while implementing a tariff-based competitive regime in project allocation, the government needs to put in enough safeguards to ensure that the process is not abused.