Power sector reforms a must in Tamil Nadu
Nearly 12 years after Tamil Nadu issued a government order to reform the power sector, plans are afoot now for a giant recast. Though TANGEDCO (state-run company managing generation and distribution utilities) and TANTRANSCO (managing transmission) were created in November 2010 by splitting the erstwhile Electricity Board, the sector continued to be under generous political patronage.
While all major industrialised states in India marched ahead with reforms, TN remained a laggard. The paltry average tariff for domestic consumers of Rs 2.20 per unit, way below the average purchase cost of Rs 5–6, tells us how various governments have shied away from raising the tariff since 2014 for the fear of a political backlash. With the demand for electricity shooting up, the Stalin government is treading cautiously on the reform process. Nightmares of long load-shedding and power outages that led to ouster of the previous DMK government in 2011 still haunt the party.
The political patronage over the years has led to a massive accumulated loss, currently at Rs 81,000 crore even after the government’s efforts to bring it down. The outstanding debt stands at Rs 1.34 lakh crore. Obviously, the free electricity provided to all farmers and the low-end domestic consumers who utilise fewer than 100 units has been a major drag on the state exchequer. In the recent Budget, TN’s finance minister allocated over Rs 22,000 crore, including Rs 13,108 crore for absorbing 100% of TANGEDCO’s losses, and another Rs 9,120 crore for providing free power to farmers and domestic consumers, and subsidised electricity to the power-loom industry.
Clearly, the government can’t afford to be so generous if it hopes to build more power plants to meet the rising demand. A team of consultants, led by EY India, is working with the profusely bleeding state-run power companies to find a way out. If they focus on renewable power and debt restructuring, it will surely yield some positive result. The government has made a successful attempt at bringing down the loss, but it faces a Herculean task ahead.