Powerless reforms

For consumers used to seeing telecom tariffs falling almost every other day, the reforms in the power sector must come as a big disappointment.

The promised competition in the form of “open access”, which allows more players to distribute power to consumers in the same geographical area, has not materialised.

In the case of Delhi, for example, where the erstwhile Delhi Vidyut Board (DVB) was broken up and privatised three years ago, tariffs have moved only one way—up—and they are all set to rise once again.

Tariffs didn’t go up initially as the Delhi government had committed a sum of Rs 3,450 crore over five years to keep prices at a reasonable level, but that money has long been exhausted.

When the Tatas and Reliance were not able to invest what they had promised in 2003-04 (Reliance invested 20 per cent and the Tatas 80 per cent of the promised amount), the Delhi regulator assumed that they would make similarly low investments while fixing tariffs for 2004-05.

But both of them have far exceeded this in 2004-05, and the regulator has had no option but to give them higher tariffs in 2005-06 to compensate them for the higher investments made.

As per the agreement signed, the firms have to get a return of 16 per cent on investments made by them.

The Delhi reforms appear to be tilted in favour of private firms. The bids were awarded on the basis of the loss reduction that the companies would be able to achieve.

But since power losses will still be 34 per cent at the end of five years—twice as high as the 16 per cent losses in Delhi’s NDMC area—it appears as if the targets were soft ones.

Moreover, the 16 per cent guaranteed return on capital employed is far too high. The two firms got further assistance from the central government, which gave them a generous grant under a power reforms window for reducing the very losses they had promised to reduce while bidding for the erstwhile DVB! On the plus side, power shortages seem to have come down.

While tariffs remain high for the consumers who actually pay them, estimates by the regional load despatch centre show that both average and peak energy shortages in Delhi declined significantly last year.

From 2.2 per cent in 2003-04, the average power shortage in 2004-05 was 1.1 per cent.

The larger issue is about how costs can be brought down, not just in Delhi but all over. India’s power costs are amongst the highest in the world. While tariff cuts will happen only after transmission and other losses are reduced, it is equally true that the current policies of the government haven’t done much to ensure greater competition.

Right now, one is more likely to see a government monopoly being replaced by a private one than anything else. Increased competition was the avowed aim of the Electricity Act passed by Parliament, but for one reason or the other no state electricity regulator has been able to make much progress on this front.

The consequence will be a high-cost power sector that will make manufacturing uncompetitive.