Professional approach, need of the hour

For several decades to come, the Central and State owned entities will continue to play a dominant role in the electricity supply business. The private sector should be encouraged to come into both generation and distribution, says M. R. Srinivasan.

NEARLY EIGHT years ago, the Narasimha Rao Government announced a major policy change in the power sector and opened the door for the private sector. During this period, two power stations in Gujarat, one in Andhra Pradesh and one in Maharashtra have actually started supplying power. During the Eighth Plan, the private sector was expected to add a capacity of 2,800 MW; in reality only 1,400 MW was added. The Ninth Plan, in its draft submitted in March 1998, had envisaged a total capacity addition of 40,250 MW and of this 17,500 MW was assigned to the private sector. The capacity addition that may actually be achieved by the private sector in the Ninth Plan may not exceed 2,000 MW! So where did all the plans and policies go wrong?

When private sector entry into power generation was contemplated, there were Indian private companies generating and distributing power in Mumbai, Calcutta and Ahmedabad. These companies should first have been encouraged to add as much capacity as they could. They could also have been encouraged to look for overseas partners to bring in additional investments and newer technology. Similarly, the large engineering and manufacturing industries which were familiar with captive power plants could have been encouraged to set up the so called `independent power projects' (IPPs) and supply power to State electricity boards. Instead, senior bureaucrats spearheading the induction of the private sector spent all their time and energy enticing the U.S., European and Japanese power industries to set up IPPs in India. It should have been evident that no investor was keen to come to India when the sole buyer of electricity, the State electricity boards, in many States, at any rate, was bankrupt. Reforming the State electricity boards into corporate business entities run on sound financial and technical principles should have been the first step. The operational steps were tariff restructuring to minimise and eventually remove cross subsidisation, progressively increasing tariff for agricultural supply, control of theft and avoidable lones, metering for all supplies effected and collection of moneys from the consumers. In addition, other actions that were required were reduction in the bloated staff, a long tenure of say five years to the chairman and members, selection of these key people from among professionals from the industry, strict control on selection of equipment suppliers and construction and erection agencies to ensure high quality work and so forth. Instead of attending to the maladies of SEBs, political and administrative leaders were lost in the euphoria of long lists of potential IPPs knocking at their doors. Soon they were lost in the jungle of sovereign guarantees and escrow cover. Additionally, the per MW cost of IPPs was substantially higher than what the Central and State projects had cost. Some of this could be explained as costs of risks the IPP had to accept - it took considerable time for our negotiators to appreciate this point.

Enron, the first major IPP

The first major IPP namely the Enron Project at Dabhol in Maharashtra was the centre of intense controversy for many years. At several points in time, it appeared as though the project would never take off. The persistence of Enron has to be landed and a part of the station has started supplying power. What should have been a benchmark project for supplying economic power has unfortunately turned out to be a white elephant for the Maharashtra State Electricity Board. Under the `take or pay' clause, the MSEB is now obliged to buy expensive Dabhol power instead of cheaper power from the Tatas or its own generating units. The MSEB argues that over time when additional demand builds up, Dabhol will play an important role in meeting the demand-supply gap. There are, however, some knowledgeable critics who hold the view that Dabhol will cripple the finances of the MSEB. Time alone will tell who is right.

The media and industry have been talking of privatisation of the power sector whereas what the Central and State governments were doing was to bring in the private sector to add new generating capacity. There has been a limited effort at making over distribution to a private party as in Orissa.Meanwhile the IPP association has held many seminars all over the country bringing in overseas experts in the privatised electricity business. While somewhat premature, such education well ahead of time is still of value in the long term.

At long last a number of electricity boards have begun the task of corporatisation and restructuring, often at the insistance of the World Bank which has extended loans to these SEBs. Orissa, Andhra Pradesh, Haryana are some of the States that have moved ahead. In the case of Andhra Pradesh, there was concern among the SEB personnel about restructuring. The Chief Minister, however, managed to build up a fairly strong support of the ruling party and the State administration and is moving ahead reasonably well.

In Uttar Pradesh, we have witnessed strike and the attendant dislocation. However difficult, one must not have a confrontation between the SEB staff and the SEB management. The media is trying to project that the staff of SEBs are the guilty party responsible for the mess on the electricity front. In reality, it is due to acts of omission and commission on the part of ruling parties, the State administrations and the SEBs, both management and staff, over several decades, that have led to the current situation.

Govt. entities to play dominant role

For several decades to come, the Central and State owned entities will continue to play a dominant role in the electricity supply business. The private sector should be encouraged to come into both generation and distribution. They could also be encouraged to enter the business of bulk transmission from pithead stations to local centres. Over time, the role of the publicly owned institutions could decrease, if the private sector performs well. For the immediate future, the National Thermal Power Corporation and public sector oil companies have been asked to step up their plans of capacity addition. Otherwise, large deficits will begin to appear.

The one positive step that has been taken is the setting up of the Central Electricity Regulatory Commission and State electricity regulatory commissions in some States. But the country is new to the regulatory process. No one should be surprised if the kind of controversies that arose with TRAI erupts with the decisions of the CERC and SERC. At the level of ministers at Delhi and the State capitals, there is a tall talk of reforms and restructuring. In reality what has taken place is miniscule in relation to the needs. For instance, a set of show case projects sponsored by Germany, France and Japan, both at the level of their industry and governments, has got lost for scrutiny by a high power committee headed by a former Chief Justice. What was needed was a techno-managerial decision making and not a judicial process. It is also possible that the governments of other countries slowed down cooperation with India in the post-Pokhran situation. But one thing clearly emerges that both at the political and administrative levels, India has not displayed a high quality of professional approach to solve what are undoubtedly difficult problems. But one should bear in mind that India has an electrical supply industry with a size of 100,000 MW and all kinds of expertise is available within the country, if only the leadership decides to utilise it. The need of the hour is constructive cooperation between governmental agencies and private sector entities and fair decisions taken promptly and implemented efficiently.

(The author is former Chairman of the Atomic Energy Commission)

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