Beyond crisis: the financial performance of India's power sector

At the end of 2011, the Indian power
sector found itself in financial crisis, just a decade after
the 2001 bailout of state electricity boards (SEBs) by the
central government. Bankrupt state power distribution
utilities in several states were unable to pay their bills
or repay their debts. Despite the passage of the landmark
2003 Electricity Act and implementation of a broad set of
reforms over the past decade, the sector today is looking at
another rescue from the center, four times larger than
before. This financial rescue scheme amounts to about Rs 1.9
trillion ($42 billion) and was instigated by the
nonperforming assets of the banks and other financial
institutions. The Electricity Act was envisaged to create
independent companies functioning on commercial principles,
but they are still far away from that goal. This report
presents a diagnostic of the financial and operational
performance of segments in the power sector value chain
between adoption of the Electricity Act, 2003, and 2011,
including analysis of the factors that contributed to the
recent crisis. The report focuses on efficiency and
productivity, whether performance has improved over time,
and which states have emerged as performance leaders.
Analysis of this kind is not new or unique, but this report
aims to integrate historical performance, the current
situation, future projections of the impact of worsening
sector finances, and the actions that need to be taken to
check the downturn. The report draws primarily from utility
data collected by the Power Finance Corporation in
successive years on utilities operational and financial
performance. The Power Finance Corporation data were
collated into a single database with the addition of various
operational parameters at the plant level and the utility
level from the Central Electricity Authority.