02-Dec-2009

Brookings Institute/UTI Bank study on power distribution in India (2007)

[This was posted to Hasiru Usiru mailing list]
Apparently, Brookings Institution & UTI Bank did a study in July 2007, mainly concentrating on the distribution aspect (The Power Sector in India: An Inquiry into the Efficacy of the Reform Process). Here are two interesting observations from that study:

Following a series of policy interventions instituted after a default crisis in the power sector around 2000-01, the rot in the power sector has been stemmed. The financial situation of the sector has eased, and together with the improved fiscal position of states, the strain on the states' fiscal deficits has lessened. Deficits as a share of GDP have declined [note : the policy interventions were not necessarily moves towards privatization. They were steps like unbundling, revenue orientation, management changes etc].
....
While the data in the paper shows evidence of only a weak relationship between ownership and profitability, it is important to bear in mind that the more successful subset amongst the discoms which have been privatised (i.e., Delhi) is a relatively nascent experiment, which has still managed to outperform many of its more mature peer utilities, while having started from a more disadvantaged initial condition.

Their finding on privatization/profitability is interesting, even though they apparently were not able to resist giving a thumbs up to private players. I mean, the private discoms in Delhi got a clean balance sheet, loads of loans/subsidies [note: there is very little data on how much of the loans have been repayed etc], extremely low target loss %, a guaranteed return on equity of 16% - that is a disadvantaged position?!

Regards,
Dinesh.

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