Will the reforms work?

By Mahesh Vijapurkar

RECENTLY, ALL senior politicians in Maharashtra - including the Nationalist Congress Party leader, Mr. Sharad Pawar, and the Chief Minister, Mr. Vilasrao Deshmukh - sat down like a sombre college of cardinals and asked a host of former Chairmen of the Maharashtra State Electricity Board (MSEB), which is in deep crisis, a single question: how to bring it back to viability from its current inefficiency, accumulated losses, mounting receivables? This question need not have been asked at all, if the politicians had allowed the MSEB chiefs in the past, invariably experienced IAS officials save an occasional exception, to run the power utility professionally sans all political interference.

What happened with the MSEB is what happened with any other SEB in the country. Tariff was determined on political compulsions: the farm sector was subsidised which in turn defaulted on payment of bills; the industrial sector was burdened by providing to the farm and the domestic sector a hidden subsidy of over Rs. 5,100 crores annually. The Maharashtra Government, never allowed the MSEB its deserved autonomy but only treated it as a handmaiden and appropriated to itself the responsibility of fixing tariff. In turn, periodically the Government had to convert its loans to the MSEB into equity. Now, the Government has again agreed to convert loans worth Rs. 1,986 crores.

The political cardinals woke up because the World Bank read the riot act to Mr. Deshmukh during his visit to the U.S. in July this year: reform the MSEB or else forfeit any claims on its resources for use in any other sector. For several years, the World Bank had been unhappy that the MSEB had to depend on hidden subsidy and infusion of Government funds - Rs. 2,800 crores between 1997 and 2000 - to ensure a rate of return of 4.5 per cent on its fixed assets. The World Bank had withdrawn a loan of Rs. 750 crores once and it is inflexible in its approach. That has been a wake-up call for the politicians.

Another reason is the Electricity Regulatory Commission's (MERC) firmness in dealing with the MSEB. It has refused to buy any argument of the MSEB for its continued slackness and has called for major changes. Despite a contract with Enron to buy its power, the MERC wants power to be sourced from the cheapest seller; meters installed so that everyone pays for what they consume; cross-subsidies eliminated over the next five years; and transmission and distribution (T&D) losses brought down to 26.89 per cent from the present 32 per cent. That alone would fetch an additional Rs. 600 crores annually.

When the bureaucrats met the politicians, they did some plain speaking- the underlying message was that all this could have been avoidable. The bureaucrats noted, happily, that there was a realisation that the crisus was not impending but actually on, though the politicians were asking for innovative solutions to problems created over the years. The virtually unanimous urging was that MSEB should be made autonomous, that the political interference cease forthwith even if the reforms are not to include privatisation to start with, but instead a splitting up of the MSEB.

What is curious is that if the Maharashtra ERC and the World Bank have in their own way forced the pace towards much needed reforms, sceptical officials wonder if the politicians, who created the problems in the first place, are serious about solving them; whether the recent meeting will remain a one-time wonder with little followup. The new MSEB chief, Mr. Yashwant Bhave, is ploughing ahead with a change in approach to secure corporatisation of the entity and beef up its fiscal status by reorganising it financially. He has a lot on his plate.

Those who called the conclave, which saw former MSEB officials - they must have all wondered why they were never heard before the crisis gripped the MSEB - speak up, interestingly enough, were those who had scoffed at the MERC in recent times. One was Mr. Pawar himself who, shooting from the hip, told his partymen that ERCs across the country were a ploy of the Centre to interfere in the discretion of the State Governments in fixing the electricity tariff. Mr. Deshmukh, at a Cabinet meeting, had even said, soon after hearing about the new tariffs and other prescriptions of the MERC, that it would be better to wind up the body, a task impossible under the present laws.

Now there is a realisation that if the power board is not reformed soon and allowed some autonomy, not only will it go down but it might ``even swallow the State Government itself''. The State Government has been pouring its scarce resources into the bottomless pit that the MSEB it has become, without any tangible benefits accruing. Infusion of funds only gave the MSEB more leeway to continue with its politically-guided waywardness.

The politicians at another level have not given up their propensity to fiddle with even the MERC directives on tariffs. A written instruction was sent out to the MSEB to bill the farmers at the new rates given by the MERC but to collect only at the old rates. Much favour was sought to be given to defaulting powerloom owners who also have made it a practice to clandestinely tap the powerlines. But, at least for the record, the entire establishment, at least for the consumption of the World Bank, talks reforms. Mr. Deshmukh says ``this will be our biggest challenge''`` and ``we will do it''. But the World Bank will look for results, not promises.

For now, the MSEB - and the State Government - are committed to unbundling the utility into three autonomous state bodies - handling generation, transmission and distribution. If at all one of the three is for privatised eventually, it will be distribution because it is here that a big chunk of what is generated is lost. The euphemism for theft with the connivance of MSEB personnel is ``T&D losses''. It was left to the World Bank's Regional Vice-President, South Asia, Ms. Nishmizu Meiko, to tell the Government that it was falling behind Orissa and Uttar Pradesh in making changes in its SEB.

Maharashtra had an opportunity to avoid the ignominy of being told by the World Bank to either get its act together or forget about funds for its urban transport projects, forestry programmes, drinking water schemes and even structural readjustment loans. This opportunity had come about when the Rajyadhaksha Committee appointed by the Government itself had over four years ago asked that MSEB to mend its ways on several fundamental issues.

Now the MSEB is hard put to find even the Rs. 300 crores to install meters for all consumer, especially in the farm sector. It has allowed the domestic consumer sector alone to build up a backlog of Rs. 560 crores which is 17 per cent of the total unpaid bills. The total dues from all sectors is a phenomenal Rs. 3,600 crores if not more. Dues from the farm sector are at Rs. 1,105 crores. The income to revenue difference which was at six per cent in March-end 1999, it multiplied to 22 per cent a year later. It tried to cover all this inefficiency with a tariff hike.

But this was not be. The MERC was asked to approve a tariff that enabled a revenue of Rs. 12,721 crores but it approved only Rs, 11,215 crores. This set the alarm bells ringing. But the question remains: how much of what was said by the former chiefs of the MSEB will be heeded? The Government has in fact proposed a new bill to reform the sector which includes a clause that will enable it to ``issue directions'' to the MERC!

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