The real power crisis

Even if the government does manage to get the controversial Dabhol power project going, this is unlikely to solve the country’s huge power crisis since the current shortage levels are around 12 per cent.

And in the case of Maharashtra, which is where the 2,400 MW Dabhol plant is located, the current shortages of around 4,000 MW are expected to double by the end of the decade.

Based on the current details available, the new Dabhol will cost more than a brand new plant of a similar size would cost today since the GE-Bechtel combine is still demanding around $460 million to settle their claims, a sign perhaps that they think their $5 billion arbitration suit in the UK is a strong one.

Any settlement, of course, is going to be expensive for the Centre since, while the original central government guarantee for Dabhol was under $300 mn, the new SPV structure, planned as part of the revival package, raises this to 2.5 times that amount.

Clearly Dr Manmohan Singh, who kept the counter-guarantee low as finance minister and has now hiked it as Prime Minister, is of the view this is small change in return for the promise of more power in Maharashtra.

The problem, however, is that while the government may still manage to get one Dabhol back on stream, how does it get more investment in power plants in a situation where the principal buyers, the state electricity boards, are bankrupt—since government guarantees are no longer available, how does a potential investor secure his dues?

This is an issue the Electricity Act, 2003, sought to tackle through what’s called “open access”, which essentially allows users like Business Standard, for instance, to say that it wants to buy power from a company in Assam instead of from BSES which is authorised to supply power in this part of Delhi.

Under “open access”, the Assam company will pay a small charge for using the existing power lines to transport its power to the Business Standard office, and a surcharge (more on this later) to take into account the fact that BSES is not able to recover all its dues due to rampant power theft and other reasons.

From the investors’ point of view, open access is very useful since, someone who wishes to set up a power plant in Maharashtra, for instance, knows that if the Maharashtra State Electricity Board (SEB) can’t pay him, he can simply transport his power to buyers in Delhi, Kolkata, or Bangalore.

The problem, however, is that despite all the legislation, the situation on the ground hasn’t changed much and open access still remains pretty much pie in the sky. Since power is a concurrent subject, the Electricity Act of 2003 couldn’t really lay down rules for the state governments.

What it did say, though, was that state-level electricity regulators would have to allow open access “not later than five years from the date of commencement of the Electricity (Amendment) Act, 2003” to those users who had a requirement of one megawatt at any point in time —that is, by January 27, 2009, there would be a fair amount of competition as, say, medium-sized commercial complexes would be able to buy electricity from suppliers of their choice.

In keeping with this, several states have laid down a time-frame for open access, though most missed the original deadline for coming out with their timetables. But now that several states have done the needful, how do these look? Not too great.

States like Tamil Nadu and Rajasthan, for instance, an analysis by law firm Amarchand & Mangaldas & Suresh A Shroff & Company shows, have not allowed open access for anyone who needs it for less than a year—in other words, they’re not even pretending to have competition, which is possible only in a market where buyers can change suppliers overnight, if need be.

Indeed, since several states allow open access customers the last right to use transmission lines, this makes things worse—so, if you want to buy power from an outside supplier instead of your SEB (or its successor like BSES and NDPL in Delhi), you’ll get the power only when the transmission lines are free!

Karnataka has allowed open access from April 1, 2005, for users who have an energy requirement of over 15 MW, while Punjab and Haryana have said this can be done from April 1, 2006—while this sounds great, it’s important to keep in mind that there would be very few users in a state that have such large requirements.

A million-tonne cement factory, for instance, would probably have a power usage which is so high. Uttar Pradesh has allowed open access’ for only users who have a demand of over 20 MW from April 1, 2005!

But, one could argue, even if states are delaying the process, they have to allow open access for 1 MW customers by January 2009 anyway, right? While that’s theoretically correct, there are too many problems to justify the believe that the going will be easy. Two years after the Electricity Act passed, there are only one or two instances of open access being used.

In Rajasthan and Madhya Pradesh, the regulator has not specified the amount of surcharge to be paid by open access users—keep the surcharge too high, and it’ll be unviable to shift suppliers. The Andhra regulator has fixed this at Rs 2-3 per unit, and in Kerala, while the surcharge was very reasonable when Indal wanted to buy power from outside the state, the SEB imposed other stiff conditions, making the move unviable, and so Indal just shut its plant in the state.

In another case of an SEB which had no problem bringing in 300 MW of power from outside the state, when a private player wanted to take out 100 MW to another state, the SEB said it didn’t have the capacity! Various states have also begun to impose an electricity duty on captive power plants that now want to supply power to other users.

Frankly, till the state regulators stop acting as extended arms of the state electricity boards and their monopolist-successors and crack down on these attempts to stifle competition, this sector’s going nowhere. Fast.