An apology to Pradip Baijal

Until I went to Goa last week for a conference organised by the Independent Power Producers Association of India, I used to think the telecom regulator, the TRAI, was unduly soft on government-owned companies like BSNL, so much so it got telecom users to pay BSNL a hefty subsidy of over Rs 5,250 crore each year.

Well, after interacting with many state-level electricity regulators at Goa, I must apologise to not just Pradip Baijal but other telecom regulators on whom I’ve been harsh over the past few years.

The fact is that, despite the favours shown to firms like Reliance in the mobile phone business and the farce over the BSNL subsidy, at least there is competition in the telecom sector, the number of phones has increased dramatically, and tariffs are going down. None of this is happening in the power sector, however, despite the fact that one of the jobs of the regulators is to increase competition.

But how do you increase competition since, at the end of the day, power is different from telecom in one fundamental way—it is transportable only over wires, unlike telecom signals, which, at the last mile level, are increasingly being transported in a wireless manner.

While giving multiple distribution licences so that two licencees can compete for my custom is one option, imagine the costs of having two sets of distribution lines coming to each house in Gulmohar Park.

And if I have to pay for the line, that’s the surest way of ensuring I never switch electricity providers. The way out is “open access”, or the right to allow different licencees to use the same wires.

So, company A may own the power cable coming into my house, but if I ask company B to supply me power, company A has to allow company B to use its cable, and in return company A will be paid a certain charge.

This is what the draft electricity act mandated, in 2000 itself, when it said open access should be allowed for consumers who use up to 1 MW, within three to four years. For one reason or another, this has now got pushed back to around 2008-09.

In the UK, to outline the global open access story, the government allowed large consumers (the 1 MW chaps) to get open access in 1990, by 1994 consumers using 100 KW were allowed this, and by 1999 even the smallest of users had open access.

While electricity costs in India have been going up each year, electricity bills in the UK fell around 40 per cent in real terms in the last decade.

Apart from lowering costs for users, open access allows power producers to sell directly to users instead of bankrupt state electricity boards (SEBs)—so, open access is important from the point of view of getting in fresh investment as well.

Now, since the regulators in each state realised that the 2008 open-access deadline was really for the worst states, some of them have begun making some moves towards this. The Rajasthan regulator has ruled that, by 2005, open access will be allowed for those who consume more than 15 MW of power.

Other regulators like in Madhya Pradesh and Andhra Pradesh have also come out with open access orders. While this is good, there are obvious problems.

For one, the Rajasthan regulator has not specified the surcharge users will have to pay when they use the open access facility—the surcharge is paid to compensate the SEB that over-charges large users in order to subsidise other users such as households and farmers.

Not fixing the surcharge makes the order unimplementable, because the final surcharge can be so high that it may not make sense for users to switch suppliers.

Indeed, the Rajasthan regulator has said that if a company wants to have open access, its demands will be last on the list—that is, the Rajasthan SEB will transmit its electricity on the wires to every other buyer first and when the transmission lines are free, open-access electricity will be allowed to pass through!

The draft Andhra bill fixes the surcharge for one category of users at around Rs 2 per unit and at around Rs 3.2 for another category, effectively ensuring that no one even thinks of switching suppliers!

The Madhya Pradesh draft order, as in the case of Rajasthan, is silent on the surcharge. Kerala is the only state to actually have passed an open access order along with a surcharge, when Indal wanted to move out of the state since power tariffs had been hiked from Rs 1.12 per unit in 1997 to Rs 3.35 today.

The Kerala regulator allowed it to access power from other suppliers after paying the SEB 42 paise per unit of power. But till date, for whatever reason, Indal has not been able to access power from other suppliers.

To be fair though, at least these states are trying to make a beginning. One year after the electricity bill was passed, one would have thought the Delhi regulator would have figured out when to begin open access in the capital and have done homework on how, if at all, this would affect the agreement the Delhi government signed to give monopoly distribution rights to Tata Power and BSES.

And if the agreement didn’t allow open access, the regulator have taken legal opinion on what the way out was to give consumers their rights.

Well, when the topic of open access came up in the Goa retreat, the Delhi regulator asked the panel whether, in the case of Delhi, this was possible, given the government’s agreement with the Tatas and BSES! My apologies, Mr Baijal.