Sucheta Dalal :Are on-going power reforms adequate? (16 June 2002)
Sucheta Dalal

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Are on-going power reforms adequate? (16 June 2002)  

The crackdown against non-payment of electricity bills in Rajasthan, the two-time tariff hikes in Karnataka, privatisation of distribution in Delhi and the reforms in Harayana have all hit the headlines in recent months. State after State is realising that they have no option but to reform their power sector. At the same time Power Minister Suresh Prabhu, has been cracking the whip and forcing States to draw up a reform agenda with measurable milestones before parting with central assistance.

If one were to go by newspaper headlines alone, it would appear that power reforms in India have taken off in earnest.

For instance, Harayana, Rajasthan and Andhra Pradesh have been able to arrest soaring power sector deficits and are now eligible for central grants equal to the amount of deficit reduction. The Deepak Parekh Committee has been appointed to review power reforms in various States, indicating that government wants to monitor the progress made.

Do all these add up to a picture of real reform in the power sector, or are they more of an illusion created by the States to avail of funds from the Accelerated Power Development and Reform Programme scheme? What exactly is the demand-supply situation on a national level? The central government says that we need an investment of Rs 8 lakh crore in the sector to increase the generating capacity to 1 lakh MW.

On the other hand, several experts believe that much of India’s requirement –at least to the extent that would find paying consumers – can be met by cutting costs, preventing theft and reducing transmission and distribution losses. What is the point of fresh investment unless users are willing to pay?

Our scepticism stems from the fact that State governments have consistently fudged facts, exaggerated demand-supply positions to seek fresh investment, instead of addressing themselves to basic reforms such as correct billing and metering of power supply.

The fudging of demand-supply figures saddled Maharashtra with Enron’s 2,185 MW Dabhol power project, which finds no takers for its expensive power.

So grossly was the demand-supply situation exaggerated that Maharashtra’s politicians were all set to clear several other large private sector projects complete with state and central government guarantees. Fortunately, the controversy over Dabhol prevented these projects from taking off and they were later cancelled.

Last year, the CII rated power reforms in various states and assigned the highest rating to Andhra Pradesh, Harayana, Karnataka, Orissa and Rajasthan. It said that Delhi, Gujarat, Madhya Pradesh, Maharashtra, Uttar Pradesh and West Bengal are also making some progress, but do all of them add up to a picture of serious reforms?

Not really. The head of a leading financial institution remains extremely skeptical. He says that despite genuine efforts by the Power Minister, the picture is far from happy.

Reforms initiated by a few smaller States have very little impact on the national power scenario, which continues to remain bleak. For instance, Maharashtra is still a mess. The ruling coalition feels no sense of urgency about pursuing power reforms and continues to waffle over the fate of the Dabhol project.

Such neglect led to an extraordinary power crisis at the end of May leading to massive load shedding and power cuts across the State and a stoppage of supply to industry. This forced the CII to issue a strongly worded statement demanding reform and investment in Maharashtra’s power sector.

Neighbouring Gujarat is not much better. The Consumer Education and Research Centre has alleged that “unplanned, inefficient and uneconomical operations were creating deliberate power shortage in Gujarat”.

In a complaint filed before the Gujarat Electricity Regulator, it says that as many as 26 plants were shut down during the peak summer season for annual repairs and maintenance (one is shut down because of non-availability of Gas from Gandhar) instead of staggering the shutdown.

In the meanwhile, the State buys expensive power from Independent Power Projects in the private sector. The consumer group wants the Gujarat Electricity Board to restart several of the plants immediately.

Furthermore, it alleges that the GEB pays Rs 80 crore per month to IPPs as fixed cost without purchasing a single unit of power from them. Of this, Rs 42 crore is paid to PowerGen, Rs 20 crore to Essar Power and Rs 18 crore to others. The consumer group wants the Power purchase agreements with these companies to be declared null and void and the deal made available to the public.

Incidentally, Gujarat and Maharashtra are the two most favoured investment destinations in the country. Let us look at Andhra Pradesh (AP), whose CEO N.Chandra babu Naidu made waves with his reform initiatives. AP has announced a substantial reduction in losses after undertaking reforms, but it is also home to controversial power projects such as Spectrum Power Generation which could easily have been set right with some firm handling.

This 208 MW fast track project was among the first to start power generation but has been marred by disputes between the promoters and mismanagement. A Supreme Court order may finally allow lending institutions to salvage the Rs 1,064 crore project.

After the much-touted World Bank funded reform project in Orissa came a cropper, its power sector remains a mess. The picture is as dismal in the more prosperous States of Southern India. The Kerala State Electricity Board (KSEB) saddled with Rs 2,500 crore of losses correctly decided to hike its tariff by 90 per cent. This has led to a storm of protest from commercial establishments and domestic users.

In Tamil Nadu, the subsidy bill continues to rise. The Tamil Nadu Electricity Board is reeling under the weight of unsustainable subsidies, yet tariff revision is avoided due to political compulsions.

Uttar Pradesh has expressed its intention to pursue reform after years of shielding defaulters, but only when it was with discontinuation of power supply by NTPC.

In most States, the emphasis is on installing basic metering in order to ensure proper billing and payment. Although this passes off as reform, it is too inadequate a basis on which to fund new, bank-funded power projects.

-- Sucheta Dalal