People's Democracy

The Power Sector Mess

  E Balanandan

THE Vajpayee government at the centre and many state governments under its dictates have taken various measures for the speedy privatisation of the country's power sector.  The result of which needs no elaboration since all types of consumers are very much aware of it through their own experience -- the unbearable tariff hikes, erratic power supply, stagnation in development etc.  The much tom-tomed legal framework created through the Electricity Act, 2003 did not improve the situation, but created new problems since the basic objective of it was to privatise the industry and to transfer the time tested system for profit hunting.

EXPERIENCE OF SOME STATES

Let us see the experience of a few states. More or less every state, except a few like West Bengal, moved to the privatisation mode due to economic compulsion and faulty perceptions for the sake of brevity. 

Orissa was projected as a `model' and the government paid Rs 305 crore to the consultant for formulating the proposals for privatisation and capacity building. They have restructured the State Electricity Board separating generation, transmission and distribution. Generation and distribution have been entrusted to private companies including the foreign company, while transmission has been kept under State ownership. This experiment failed miserably.  Power rates increased twice or thrice.  Since the companies could not cop up with the financial transactions and failed to continue their operation, they quit the scene like the notorious Enron Company from Maharashtra. 

In Delhi and Karnataka, different methods were tried. In Delhi, distribution system was privatised straightaway. The proposal for privatisation was made by a consultant company charging Rs 3.5 crore. However, the experience shows that while the private sector companies without significant investment were making money by increasing the power rates from the consumers besides getting much concession from the government. The people are the sufferers due to exorbitant power hikes. The employees of the system also suffered on account of loss of employment. Over 6,000 workers lost employment besides many more suffered on account of reduction in emoluments. 

In Karnataka, they are trying corporatisation of the electricity board by creating Karnataka Power Transmission Corporation and four to five distribution companies. But they did not privatise.

This they have done to get the promised World Bank loan.  However, they are also out to privatise the power sector and  thus appointed a consultant to submit proposals.  

In Andhra Pradesh, they have entrusted some public sector undertakings to submit proposals for privatisation. However, the reforms resorted to in Andhra Pradesh too did not help to improve the power system. Only the power rates went up considerably and the government were forced to continue heavy financial subsidies.

We need not go into the experience of other states.  Suffice to state that both the so-called aims of privatisation of improving efficiency and building additional capacity have failed miserably.  The projection of 7121 MW in the Tenth Plan in the private sector seems impossible.  The private sector  has now moved to new conditions for investment. It is demanding complete freedom to decide the power rates and for the system management with least interference from the government or regulatory commission.  

The Electricity Act, 2003 ignored even the unanimous recommendations of the parliamentary standing committee besides the sound advises from the technical persons and workers well connected with the industry.  The deficiencies of this legislation is coming to focus on various vital issues.  The provisions made for delicensing generation, multiple players in the same territory, open access and licensee in trading did not start working and each of these will create many problems.  

Hitherto, the responsibility of developing transmission and distribution were handled by the Electricity Board or by Power Grid Corporation, a public sector undertaking.  With the delicensing, their interest will be to get maximum profit and they may not put money for strengthening the transmission and distribution network.  This will create big problems in the system like we have seen in United States and Canada on August 15 and in London on August 28. 

The open access to more than one licensee will disturb the grid discipline and create chaos. 

By creating consumers association and consumer cooperatives, the consumers who use this open access facility can escape from cross subsidy cess and if it is developed, the cross subsidy system will not work.  According to the latest World Bank report, those less developed and developing countries which are facing resource crunch where power system working is profitably, by allowing more operators in the field for distribution and transmission will create problems in the power sector. 

TARIFF POLICY

The new draft tariff policy published by the power ministry has been opposed by all the southern states except Kerala. Karnataka, Tamilnadu, Andhra Pradesh, Maharashtra, Orissa, Madhya Pradesh, West Bengal, Rajasthan, Punjab are the states which have expressed their opposition.  The CERC and FOIR have also expressed their opposition.  The following were their main objections. 

1. Without declaring the policy of power sector, it has gone into the details of the micro management.

2. This is an encroachment into the Authorities of the Regulator.

3. The imposition of a single operating norm for the central, state and private sector is wrong.

4. The proposition that instead of T & D losses inclusion of total trade and transmission losses, the CERC do not agree with it.

5. The proposal for 16 per cent profit before tax.

6. The power rate will be increased if the electricity boards or its successors are allowed to deduct depreciation on the basis of 1956 Companies Act.

7. The proposed fixed charge by the CERC on the basis of 80 per cent power availability for Thermal Projects to be reduced to 75 per cent is objectionable.

8. The amount of surcharge proposed in the draft is an infringement of the regulators powers and it is against Electricity Act, 2003.

There are also serious differences between the power ministry and the National Thermal Power Corporation which produces 15 per cent of the total power in India and this is one of the best functioning public sector outfit.  The government wants this to be divided to five companies in order to facilitate their plan of privatisation which has also been opposed by the NTPC management. In totality, the government is still pursuing the policy of privatisation which has brought the power sector in complete disarray.  This is the contribution of Vajpayee government.