Roosting chickens

Even if you leave aside the issue of power shortages and allegations of faulty electricity meters in Delhi, one issue that stares you in the face is that much of the problem could have been predicted three years ago when the Delhi government privatised the erstwhile Delhi Vidyut Board, retaining the transmission company with the government and selling two of the distribution companies to the Anil Ambani-owned Reliance Energy and one to the Tata-owned NDPL.

Essentially, the problem was that the Delhi government accepted a very low level of theft and distribution loss reduction (around 17 percentage points from the prevailing 50 per cent or so, on an average), and this ensured that power tariffs would always remain high -- while the Delhi government still maintains that this was the best deal they were able to get, critics have argued the government didn't try hard enough.

Whatever the truth of the matter, the fact is high losses implicitly result in high consumer tariffs. To cite a real illustration, this year one of the two Reliance Energy firms, BRPL, will buy power from the transmission company at Rs 2.21 a unit.

Given that its losses for the year will be around 38-39 per cent, just to break even on the cost of power BRPL will have to charge its paying customers Rs 3.6 per unit of power.

Add another 50-60 paise per unit as the cost of distribution of power, and that's roughly what the consumer is being asked to pay today.

Even if you ignore the fact that both Reliance Energy and NDPL have been given a very good deal (they get a 16 per cent assured return on even free reserves, for instance), until power thefts are curtailed, there's little anyone can do to reduce power tariffs, not just in Delhi, but anywhere in the country -- indeed, in cases where there has been no privatisation, and that is in most parts of the country, the situation is much worse.

This underscores the need for politicians to start taking serious action when it comes to reducing theft and distribution losses, and that means allowing SEBs as well as their few private sector successors to ruthlessly cut off power supplies to those not paying their bills and to punish thieves stringently -- so far, the Delhi examples show politicians have been soft on this account and have restrained the company from taking such action on various occasions.

What's equally important if tariffs are to fall, and that is critical if India is to remain competitive in the industrial/service sectors, is that competition be introduced in the sector.

While the Electricity Act envisaged that through what's called 'open access' that allows competing suppliers to sell electricity to the same buyer (today, there's a monopoly seller in most areas), no regulator has really moved on the issue.

In cases where 'open access' orders have been issued, these have been issued with stiff riders so that the access hasn't taken place and in others, the SEBs have brazenly got away by claiming to not have enough capacity to allow power to be transmitted from one state to another.

At the end of the day, it is only when there is competition, as opposed to today's situation where the government is guaranteeing returns to distributors, that tariffs will begin to matter, and it is only then that firms will invest more to reduce theft and distribution losses.