Criticism not enough; push states to improve procurement in power sector: FISME
Updated: Sep 23, 2015 02:59:22pm
New Delhi, Sept 23 (KNN) Instead of chiding states on their continued failure to have cost-reflective electricity tariff and make utilities financially viable, the Centre should push them on overhauling utilities’ flawed public procurement system which is a drain on utilities’ resources and crimping efforts to turn around the sector.
The Centre’s growing impatience with the state power sector can be understood given that the latter’s burgeoning losses have now started impacting the financial health of the banking system, especially public sector banks whose non-performing assets have shot up to record levels.
To put things in the perspective, the state power sector has come under financial stress just three after the Centre sponsored a Rs 1.93 lakh crore financial restructuring plan to bail out debt-ridden power distribution companies. This was the second bail-out of state utilities in a decade.
Finance minister Arun Jaitley on Monday reminded state governments that public sector banks cannot be expected to fund utilities’ losses and that the latter will have to take financial responsibility of their utilities.
Jaitley hinted that the power ministry was coming out with a plan to make state governments accountable for the financial woes of their discoms. The plan will be discussed with states soon, he added.
But despite several attempts by the Centre in the past to reform the state power sector, things have just got worse and it is unlikely that fresh efforts will bring any substantial and lasting change in financial health of utilities unless a new approach is adopted. The strategy to improve utilities’ finances through regular and adequate tariff hikes have dismally failed and needs fine tuning.
A possible course correction would be to bring realism into the approach to reform the sector and prod utilities to revamp their public procurement system, thereby rationalising purchase costs which would help in defusing upward pressure on costs of electricity supply.
Utilities’ public procurement system leaves a lot to be desired as it has failed to check sub-standard supplies. Greedy vendors and corrupt procurement officials are colluding to push low-quality materials and equipment into utilities’ inventory.
As a fall-out of the widespread corruption in utilities’ public procurement, transformers blowing up just in 4-5 years have become a routine, though supposed to last for over 25 years. Consequently, transformers installed by utilities have emerged as a new safety hazard for public. The reason is rampant use of scrap-grade CRGO steel in transformers which compromises safety and durability of the equipment.
Second hand CRGO, which is imported for use by the transformer industry, costs just half the price needed to buy quality material. That is the reason scrap-grade CRGO imports are continuing unabated despite the quality control order issued by the steel ministry.
Use of substandard CRGO helps manufacturers quote low price for supply of transformers to utilities and beat competition from vendors using quality CRGO. The utilities’ practice of selecting the lowest bidder for procurement also favours manufacturers of low-quality transformers.
The Centre will be well advised to examine for possible implementation measures suggested by trade body FISME to streamline utilities’ public procurement system. If FISME’s prescription is acted upon by utilities, the latter would be able to improve quality of procured equipment and also save on costs. The savings would help utilities reduce their revenue gaps without taking recourse to a sharp tariff hike. (KNN/ NM)
The Centre’s growing impatience with the state power sector can be understood given that the latter’s burgeoning losses have now started impacting the financial health of the banking system, especially public sector banks whose non-performing assets have shot up to record levels.
To put things in the perspective, the state power sector has come under financial stress just three after the Centre sponsored a Rs 1.93 lakh crore financial restructuring plan to bail out debt-ridden power distribution companies. This was the second bail-out of state utilities in a decade.
Finance minister Arun Jaitley on Monday reminded state governments that public sector banks cannot be expected to fund utilities’ losses and that the latter will have to take financial responsibility of their utilities.
Jaitley hinted that the power ministry was coming out with a plan to make state governments accountable for the financial woes of their discoms. The plan will be discussed with states soon, he added.
But despite several attempts by the Centre in the past to reform the state power sector, things have just got worse and it is unlikely that fresh efforts will bring any substantial and lasting change in financial health of utilities unless a new approach is adopted. The strategy to improve utilities’ finances through regular and adequate tariff hikes have dismally failed and needs fine tuning.
A possible course correction would be to bring realism into the approach to reform the sector and prod utilities to revamp their public procurement system, thereby rationalising purchase costs which would help in defusing upward pressure on costs of electricity supply.
Utilities’ public procurement system leaves a lot to be desired as it has failed to check sub-standard supplies. Greedy vendors and corrupt procurement officials are colluding to push low-quality materials and equipment into utilities’ inventory.
As a fall-out of the widespread corruption in utilities’ public procurement, transformers blowing up just in 4-5 years have become a routine, though supposed to last for over 25 years. Consequently, transformers installed by utilities have emerged as a new safety hazard for public. The reason is rampant use of scrap-grade CRGO steel in transformers which compromises safety and durability of the equipment.
Second hand CRGO, which is imported for use by the transformer industry, costs just half the price needed to buy quality material. That is the reason scrap-grade CRGO imports are continuing unabated despite the quality control order issued by the steel ministry.
Use of substandard CRGO helps manufacturers quote low price for supply of transformers to utilities and beat competition from vendors using quality CRGO. The utilities’ practice of selecting the lowest bidder for procurement also favours manufacturers of low-quality transformers.
The Centre will be well advised to examine for possible implementation measures suggested by trade body FISME to streamline utilities’ public procurement system. If FISME’s prescription is acted upon by utilities, the latter would be able to improve quality of procured equipment and also save on costs. The savings would help utilities reduce their revenue gaps without taking recourse to a sharp tariff hike. (KNN/ NM)
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