Madhya Pradesh Power Sector Development Program [Loans 1868/1869]

Regulatory and institutional reforms alone are important, but they will not result in improved performance in the absence of accountability and incentives. The SDP was based on the premise that regulatory and institutional reforms will improve the performance of sector entities. Although the regulatory and institutional reforms were implemented as intended, the sector entities except for MPTransco showed no significant improvement in performance. Although there are several reasons for this such as the underlying political economy issues constraining the measures that can be taken to reduce the ATC losses, the lack of financial autonomy, financial incentives, and managerial accountability could have contributed to underachievement of this important development outcome. The management of a utility is not responsible for financial performance and MPG has regularly stepped in to finance the cash deficit. The regulatory interventions were limited to annual tariff settings based on progressively improving performance norms. The reform program should have gone beyond the institutional reforms and encouraged MPG and the regulator to set performance targets and ensure compliance with those targets through an incentive and/or penalty mechanism. It is encouraging to note that the MP State Government and MPSERC have set targets for loss reduction , revenue realization etc in last 3–4 years and the reporting requirements to periodically monitor the performance of DISCOMs with respect to these targets have been initiated.