India

Last issue we examined the inefficiencies in the electricity sector in India and concluded that there could be a potential to save a staggering USD 26 Billion every year. That money can be channeled into investments to generate growth which can easily add a few percentage points to the GDP. We also observed that most of those inefficiencies are in the distribution end of the electricity value chain. This month we would examine the specific problems that afflict the Distribution Sector. Over the past five odd decades the technical and commercial losses have continuously crept up. Soon, most electricity utilities in the country could not recover enough money from end user to even fully pay for the electricity that their customers required. That hit payments to generators and finally the fuel suppliers. Tarriffs were raised and state Governments chipped in with large subsidies. That in turn strained the Government's exchequer. Investments into building adequate generation, transmission and distribution infrastructure slowed down. New investors putting up generation capacities asked for and got sovereign guarantees for electricity sales to the electricity distributors. With such intensive Government involvement it was but natural for the sector to get highly politicized.