New hope on power

Look at any macro-aggregate, where the base is large, and the changes almost always look small, even non-existent. Thus, no matter how fast India’s economy grows, it will be a while before the per capita income figure begins to look respectable. And so it is with the country’s power sector—the mess has been so huge and so comprehensive that any change in the major operating parameters becomes visible only after a lot of effort and prolonged application of remedies. But, as this newspaper reported on Saturday, parts of India’s power sector have achieved a decisive turnaround. And an emboldened government has started international road shows to advertise the fact.

What has changed? For a start, while most electricity boards have been perennially bankrupt, in 10 states they are now cash positive. It is true that this is because state governments now pay the boards for the subsidies they mandate; but governments are entitled to give subsidies, and paying for these directly (instead of indirectly, and non-transparently) is a sign that the new laws are beginning to work. The boards have also stopped defaulting on payments to power suppliers (the result of a draconian scheme that denies them Central funds if they default)—so anyone wanting to set up a generating station knows for the first time that he can find paying customers. The boards’ financial situation has improved for the additional reason that old dues have been securitised and dealt with separately. There is a fourth change, in that the level of power losses during transmission and distribution (an unconscionable 40 per cent) has started coming down in slow steps. This is on account of a reform programme funded by the Centre, and handed over to capable organisations like the National Thermal Power Corporation, to modernise and upgrade state grids.

Needless to say, the journey ahead is long. Maharashtra, for instance, still faces a 35 per cent energy shortfall. Substantial fresh investment in generating capacity is needed, and only the first stirrings of increased investment can be seen so far. Then, the distribution grid needs further investment, as does the inter-grid transmission system for evacuating surplus power to deficit regions (the northern grid is even now on the verge of collapse).

The other task is to force states to respect the spirit of the reforms that have been put in place, and not to subvert or exploit them. For instance, states like West Bengal and Orissa have generated a large part of the surplus by selling power at exorbitant rates to power-starved states, while their own retail tariffs within the state remain low. A cap should be placed on the tariffs charged, so as to prevent price gouging. Then, the policy of open access, a key element of the Electricity Act of 2003, was meant to bring market pressures on the boards, by allowing buyers and sellers of power to by-pass the boards by simply paying a wheeling charge that was expected to be a few paise per unit. But many states, fearful of losing their best industrial customers, have tried to block this by levying such exorbitant wheeling charges that they match generation costs! This is abuse of the system, and must be stopped.