The Hindu : Too little and too slow

Online edition of India's National Newspaper
Tuesday, Apr 09, 2002

Business

Business

Too little and too slow

By Prem Shankar Jha

Over the decade of the 1990s India's growing shortage of power, especially at peak hours, and the increasing unreliability and variable quality of the power that the State electricity boards have actually managed to supply, has become the most serious hurdle to sustained economic growth, modernisation and competitive efficiency. While on the one hand it has forced industry to generate fully one third of the power it consumes at rates that are two to three times as high as producers pay in the U.S., on the other it has pushed transformation costs for small producers, who cannot afford their own power plants into the stratosphere.

The reason is a vicious system of cross subsidies where industry and industry alone bears all the costs subsidising everything from the theft of power by unauthorised users to its sale to agriculture at nil to 20 per cent, and to the domestic sector at 50 to 80 per cent of the cost of generation.

Over the years this system has also driven the State governments bankrupt. Of the more than Rs. 80,000 crores of state fiscal deficit in 2000-01, subsidies on power accounted for Rs. 34,428 crores. Fortunately, the State governments have begun to see the error of their ways and implement reforms that they had mapped out six years ago with the Central Government at a crucial Power Ministers' conference in 1996.

The components of the reform are to unbundle the State electricity boards into separate generation, transmission and distribution companies, privatise some or all of these, and set up independent tarriff regulatory authorities that would take the politics out of price setting.

For the first four years almost nothing happened. Unbundling got stalled. Only one government, that of Orissa, actually completed it but its experience showed that this was not sufficient to push politics out of power pricing.

Privatisation never took off. In fact, the State officials soon realised that even privatisation was likely to serve only a limited purpose if there was only one distribution company, for in the absence of a genuine commitment to taking government out of the market, it would be subjected to enormous political pressure from State politicians and vested interests.

Only the presence of several competing electricity suppliers could break this nexus, and that required handing over transmission and distribution to private power generators and letting them find their own market niches. As this would absolutely destroy the huge, top heavy and inefficient State electricity boards, no government was prepared, or has even contemplated going that far.

In the last two years therefore the focus of reform has shifted to setting up independent Electricity Regulatory Commissions (ERCs) and, by degrees, reforming the pricing system to reduce if not altogether eliminate subsidies. After a difficult and litigation-ridden start the ERCs have begun to show some progress in reforming tariffs. In Gujarat, Andhra Pradesh, Maharashtra and West Bengal, they have weathered the political and legal battery, heard all complaints and succeeded in pushing up average tariffs by small amounts. But the progress is infinitely too slow and the tariff increases far too small to make a dent on the power-cum-fiscal crisis.

For instance, in Maharashtra the ERC heard over 250 petitions and stuck to its guns but then in April 2000 was able to raise tariffs by only 6.5 per cent. This is so inadequate that the MSEB is losing Rs. 5 crores a day!

What is more, for every success there has been a disheartening failure. Rajasthan's ERC had to withdraw its tariff increase in the face of politically instigated unrest that led to police firing and death.

The Karnataka high court stayed a mere 17 per cent tariff increase in that state, and the U.P. and Orissa ERCs have been scuttled by their own short sighted governments.

Other State governments including Punjab and Tamil Nadu have not even begun down the road. It is therefore hardly surprising that subsidies on power are expected to climb to Rs. 38,836 crores in 2002-03.

State governments have, therefore, begun to realise that the only way ahead is to cut down the theft of power, and reduce subsidies to agriculture and the domestic sector. With tariffs to industry already ranging at around Rs. 4.50 a unit (10 U.S. cents) the scope for reducing losses by raising tariffs across the board has been exhausted. Industrialists are already generating power on their own at below Rs. 4 a unit using low sulphur heavy stock (LSHS) fuel oil.

A further price hike across the board will simply make them stop using the state grid altogether and deprive the SEBs of their base load. The essential prerequisite to doing this is to meter all electricity sales with tamper proof meters. Only then can the areas and quanta of theft be identified.

Metering — far from tamper proof — has so far been done only for industry and the commercial and domestic urban sectors.

All the State governments have committed themselves to completing this at least till bulk sales points, in a year.

This promise, like Mark Twain's promise to stop smoking, has become a hardy annual, but here too, snail-like progress is visible. One startling result of better metering has been the shocked realisation that the state governments had no idea how much power was actually being stolen.

Thus A.P.'s T&D losses jumped from 19 to 34 per cent, Karnataka's from 19 to 30 per cent and Orissa's from 25 to 36 per cent after the State made metering compulsory and adopted better energy audit measures.

In Delhi, a city with no long rural transmission lines to lose electricity on, losses jumped from an estimated 23.5 to 47 per cent. Based on these revisions it is a safe bet that T&D losses nationwide are not the presently estimated level of 26 per cent but nearer 36 per cent. Another 31 per cent of the available power is being sold to "agriculture'' at an average of less than 30 paise a unit when the average book value cost of power generation in the country is over Rs. 3 a unit.

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