The World Bank has recommended that power distribution utilities in the country must be freed from Government interference and their management must be professionalised. Reforms in the electricity distribution sector should be a top priority for the Indian Government, the report released on Tuesday said.

“What is essential is that utilities should have good corporate governance and must be commercially run,” said Onno Ruhl, Country Director – India, World Bank Group.

“We are not preaching privatisation but that is one of the solutions,” the report said.

The World Bank also recommended that regulators revise tariffs in line with efficient costs, hold utilities to service standards and create a predictable environment for decision making.

“Tariff regulation has to be effective and transparent,” Ruhl said adding that the political problem of increasing electricity tariff is not as bad as it is made out to be during election campaigns.

“People would pay higher if the service is reliable,” said Ruhl.

“What is required is a credible mechanism for regulatory decisions. A credible mechanism is trusted by the customers,” the report said.

Banks and lenders should hold utilities accountable for efficient operation and not lend to those that are not credit-worthy. The financial health of the power sector is fragile and limits its ability to invest in delivering better services. Out of the total accumulated losses of ₹1.14 lakh crore, power distribution companies, state electricity boards and state power departments make up for the large chunk of the losses.

With over ₹3.50-lakh crore debts in the power sector, there have already been two restructuring packages, one in 2001 and one in 2012.

“The Government cannot solve the problem of power distribution utilities by giving relief to the banks,” Ruhl said, adding “It is just not a long-term solution.”

India’s annual per capita power consumption of 800 kWh (kilowatt hour) is nearly one third lower than the global average and still nearly 300 million people are left without electricity. This is despite India providing electricity to an average 28 million people annually between 2000 and 2010, the report pointed out.

Related Topics