The Hindu : Half-hearted exercises

Online edition of India's National Newspaper
Friday, Oct 18, 2002

Opinion

Opinion - Editorials

Half-hearted exercises

THE TAMIL NADU Government, in getting the State Electricity Board to apply to the State Electricity Regulatory Commission for approval of a tariff revision, has signalled a welcome, even if long overdue, de facto cognisance of the responsibilities assigned to the commission, which had remained "headless" since inception three years ago. The least that can be said for the tariff revision application of the TNEB is that it initiates a process of transparency and public discussion of its operations and financial status free from the compulsions of partisan politics. The Board, while promising completion of tariff reform within five years, has sought an upward revision of energy or demand charges for most important categories of consumers within a year of the last revision in December 2001.

The main criterion by which the Board's latest proposals, including levy of a minimal tariff for agricultural pump sets and huts and intended to net an additional Rs. 625 crores in the last four months of the current fiscal (against a revenue gap of Rs. 2,340 crores for the year), should be judged is whether they take advantage of the mechanism of approval by an independent regulator to correct distortions in pricing of power and to put pressure on the Executive to muster either adequate budgetary support against the cost of subsidies or political will to end subsidies. Viewed in this light, the proposals have not gone far in this direction, even taking into consideration the fact that such an exercise would inevitably be a difficult task. None can dispute the Board's claim that it is among the best managed SEBs, that its transmission and distribution (T and D) losses have been minimal (despite some encouragement to malpractice by way of misuse of free load given for agricultural purposes), that billing of metered connections is near total and that the extent of rural electrification is near 100 per cent. The "theft" that the TNEB has suffered is mainly on account of the failure of the Government to reimburse the bulk of the cost of free supply granted to farmers. In emphasising, in its overview presented to the SERC, the losses on account of past subsidies and even the present inability of the State Government to meet the cost of subsidies, the Board has gone in for a tariff schedule that does not signal effectively its preparedness to operate, within the near future, in a competitive regime with many players in the generation and distribution sectors.

The most effective way in which such a signal could have been sent is to render relief to manufacturing industry, which accounts for 35 per cent of power consumption but contributes nearly sixty per cent of the TNEB's revenues, thus cross-subsidising many other categories of consumers. Such a relief would not only revive the prospects of small as well as big industries but also contribute to the overall economic growth of the State, whose monsoon-dependent farm sector has not been able to create adequate employment opportunities for the rural poor. Even the present State Government's vision of a rural-economy-led growth model would be impossible to achieve without investments in agro-processing units and power-intensive cold storages. The Board, far from giving relief to the industrial and commercial sectors, has imposed burdens on them, in the name of reduction in the level of cross-subsidies. In the case of high tension (HT) consumers, the energy charges have been raised by up to 20 per cent to Rs. 3.70 per kwh for one category and the demand charge (per KVA) by more than 60 per cent for another. The 40 per cent concessional tariff for night shifts will not have more than a marginal positive impact in view of its dilution to 20 per cent for units having two shifts and denial to many existing units as a result of the narrow definition given to this category. The cost-plus approach adopted by the TNEB reveals a mindset that will not be acceptable in an environment where monopoly operation — including by way of being the sole buyer of power from private generators — is widely disregarded as a reliable indicator of costs based on efficiency.

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