People's Democracy

Eleventh Plan Approach Paper And Power Sector

K R Unnithan

THE UPA government’s vision on the 11th plan is, in a nutshell, like this: “The 11th plan provides an opportunity to restructure policies to achieve a new vision of growth that will be much more broad-based and inclusive, bringing about a faster reduction in poverty and helping bridge the divides that are currently the focus of so much attention. The first steps in this direction were initiated in the middle of the tenth plan, based on the National Common Minimum Programme (NCMP) adopted by the government. These steps must be further strengthened and consolidated into a strategy for the 11th plan.”
In this regard, the approach paper has the following to say: “Work done in the Planning Commission and elsewhere suggests that the economy can grow between 8 percent and 9 percent per year on a sustained basis provided appropriate policies are put in place. With population growing at 1.5 percent per year, this would ensure that the real income of the average Indian would double in ten years. It is also possible to adopt policies that will ensure that this growth is broad-based, benefiting all parts of the country, and especially the rural areas. This must be accompanied by a major effort to provide access to basic facilities such as health, education, clean drinking water etc to large parts of our population which do not have such access at present.”

GENERAL CRITICISM

No doubt if the steps mentioned in the NCMP are properly implemented, the real income of our people will grow and bring them a modicum of relief. But doubts have grown about the UPA government’s faithfulness to the NCMP during these two years of its rule. Even though a few positive steps have been taken under it, the government has been showing conscious disregard to its vital and sensitive commitments to the people of India.

In this backdrop of governance during the last two years, the UPA government’s professions to implement the NCMP are to pull the wool over the people’s eyes. In the framework of the ongoing neo-liberal policies, a growth rate of 8 or 9 percent can indeed double the income of a few but make no dent in the miserable plight of a majority of population. After all, the theory of a “trickle-down” effect has proved just a farce.

The approach paper says investment in infrastructure including power generation, transmission and distribution needs to increase from 4.6 percent of GDP to 7-8 percent in the 11th plan period, and promises that half of the total increase in investment would be in infrastructure. But the paper also suggests an aggressive effort to promote pubic-private partnership (PPP), as public resources are scarce, and model concession agreements are being worked out in the name of a regulatory regime where private capital feels more comfort and faces the least possible risk. Thus the development of basic infrastructure, including electricity that is the government’s responsibility in any developing country, is to be handed over to profit-hunters under the label of PPP.

As for the propaganda of resource crunch, the Left parties have already pointed out how fallacious it is. Earlier this year, they made a range of eminently feasible proposals on resource mobilization. Its focus was on four areas: (a) taxing the speculative capital gains made in the capital market; (b) rationalising the myriad tax exemptions and incentives given to the corporates, especially exporters, which are nothing but subsidies to big business; (c) increasing the rate of wealth tax and introducing an inheritance tax with suitable exemption limits so that only the rich come under their purview; and (d) increasing sales tax/VAT on luxury items consumed by the rich. The Left was against an increase in the income tax burden on the salaried middle class or increase in excise duty on domestic producers. Yet the government, with ulterior motives, rejected these proposals as a prescription for a “confiscatory taxation regime.” It is, however, clear that the cry of resource crunch is only a smokescreen for the neo-liberal pro-rich policies.

SCRAP THE EA 2003

The government’s approach to power development is a part of its overall approach.

Here the bone of contention is mainly the Electricity Act 2003 (EA 2003) and the Left parties have been demanding its review. Many state governments have also expressed strong protest against the emasculation of their power utilities through the EA 2003. 

Electricity workers too are vehemently opposing its implementation in view of the deterioration of technical, financial and service performance of the utilities formed after unbundling the state electricity boards (SEBs). The failure of capacity additions in the 8th, 9th and 10th plans is an adverse comment on this policy pursued during the last one and a half decades. Affordability, accessibility, availability and reliability of power have drastically come down as a result of this act. Representatives of the employees and engineers have pointed out these ground realities to the government. 

Yet, ignoring the people’s reaction, the approach paper says that several institutional changes, needed to make the power sector more efficient and competitive, had been made, such as EA 2003, formulation of National Electricity Policy and Tariff Policy, formation of CERC, SERC and an Appellate Tribunal etc. It is another thing that, even though not thinking of any correction of these policies, the approach paper laments that the “shortage of power and lack of access continues to be a major constraint on economic growth.” The need, in fact, is of scrapping the EA 2003 and reversal of the deleterious policies if fulfilling the NCMP’s commitments is the aim.

PROPOSED MEASURES

To achieve a growth rate of 8 to 9 percent, capacity addition proposed in the 11th plan is 60,000 MW, almost double the 10th plan target. The paper puts forward the following programme for establishing the new generation capacity and reducing the cost of power:

(a) Assured availability of coal or natural gas for new power plants.

(b) National consensus on royalty rates for fuels and compensation for host states.

(c) Availability of long-term finance to lower the capital charge.

(d) Reduction in the present guaranteed rate of post-tax returns for CPSUs to reduce the cost of power and augment the resources of state power utilities.

(e) An efficient inter-state and intra-state transmission system of adequate capacity to transfer power from one region to another.

(f) An efficient distribution system to ensure financially viable expansion;

(g) Rehabilitation of thermal stations to augment the generating capacity and improve the plant load factor.

(h) Rehabilitation of hydro stations to yield additional peaking capacity.

(i) Improving supply side and demand side efficiencies to lower the primary energy demand by 5-7 percent.

(j) Ensuring the use of washed coal for power generation.

(k) Harnessing the captive capacity to support the grid.

Most of these proposals need revisions, reversals and/or additions, as suggested below.

SUGGESTED CHANGES

1. Reducing the project cost can reduce the fixed charge of electricity. A major factor in the project cost is equipment cost. Equipment prices can be brought down if we follow a policy of bulk manufacturing of equipments after standardisation instead of placing orders on different manufactures on a piece-meal basis for units of diverse sizes. This will provide economy of scale. To this aim, the underutilised capacities of indigenous equipment manufacturers can be made use of; this will also make the Indian economy vibrant and reduce the net outflow of foreign exchange. This very important aspect has been discarded in the approach paper.

2. In view of the requirement of installed thermal capacity, our viable coal reserves will be available for the next 40 to 50 years. Hence efforts must be made to reach long-term agreements, at fixed prices as far as possible, to import coal. This calls for special attention in background of the new trend of increasing coal prices in the international market. As 54.3 percent of our power generation is from coal-fired stations, this step will ensure fuel security at our present rate of coal consumption. Similar agreements are also needed in regard to LNG and other fuels including that for atomic stations. In case of all fuels used for power generation, there must be reduction in import duty and local taxes that form a sizeable part of the cost of power and thus affect the whole economy. At the same time, in place of worn-out clichés of the approach paper, vigorous steps are required for utilisation of renewable energy sources, with thrust on the hydel resources. In the today’s atmosphere of environmental dogmatism in the name of environmental protection, touching the forest areas, constructing a dam for power projects etc are considered as sins, while many vested interests are playing their games behind its façade. There must be a reorientation of environmental policies.

3. Increased power generation through atomic stations may be an option for future. Anyhow, generation from nuclear stations is expected to increase after the Indo-US nuclear agreement, which will increase fuel import for power generation. There must also be a policy in view of the expected increase in import of atomic power generation equipments, ensuring their foolproof screening.

4. Special attention is to be paid to R&D for manufacture the solar energy and wind energy equipments in order to reduce the capital investment in such projects. The existing plants run on naphtha must be switched over to CNG/LNG.

5. The approach paper says the average rate of AT&C loss is 40 percent. The neo-liberal policy says this can be contained by privatisation of distribution, but it has been a fiasco in Delhi and some other states. For a proper monitoring of losses, the AT&C losses need to be disaggregated. Reduction of commercial loss only means accounting the unaccounted consumption. Real reduction in losses can be achieved only through a reduction of technical losses, ie transmission and distribution (T&D) losses. This requires strengthening the T&D system for its optimal use. Suitable plans must be evolved to introduce the best practices of T&D loss reduction. With the participation of employees and consumers, policies must also be evolved to curb the alarming commercial losses. The multiple licensees in the same area of distribution, as prescribed in the EA 2003, can only worsen the state of affairs and lead to an inefficient distribution system.

6. The approach paper is keeping a loud silence on lowering the guaranteed rate of post-tax return to the so-called independent power producers while the same is suggested in case of the CPSUs to reduce the cost of power. In fact the proposal must cover the private as well as public sector. There must also be suitable amendments in tariff policy that advocates an increase in the guaranteed post-tax return.

7. Mega and ultra-mega power projects need to be reviewed and corrected (a) to obviate the hurdles in capacity addition by delinking it with the privatisation of distribution, and (b) to avoid an increase in the cost of power in the wake of privatisation of the ultra-mega projects.

8. There is substantial shortage during peak hours and surplus during off hours in many parts of the country. Such a situation demands the pumped storage system as a viable option to reduce the peak-hour shortage. Extension of existing plants and renovation of old plants must be taken up with the support of least-cost funds.

9. For optimal utilisation of resources and uninterrupted services to satisfy the growing demand of the growing economy, the infrastructure network has to be strengthened and modernised.

10. Programmes must be evolved to introduce IT enabled services --- at least for billing, cash collection, accounting, other areas of interface with consumers, inventory control and human resources management to increase efficiency and to obtain consumer satisfaction.

11. The approach paper admits the big failure so far in rural electrification. In this regard, a package was declared in the wake of the struggle against the EA 2003, under which the government is withdrawing from its responsibility. There is a move to push the privatisation of power sector by separating the loss making areas, incorporating a turnkey system for construction and a franchise system for further maintenance of the village level infrastructure. This was done without consulting the states and understanding the ground realities. The situation will go from bad to worse if proper corrective measures are not taken in regard to EA 2003 and the said package. If the target was to electrify 10415 villages, only 6714 were actually electrified. Also, only Rs 15.61 billion were released as against the sanctioned project cost of Rs 62.41 billion.

12. A patriotic approach to the 11th plan is needed for the country’s self-reliance in power sector. With this in view, (a) SEBs must be further strengthened with the participation of employees in management; (b) Central Electricity Authority must be further strengthened as a truly federal body; (c) scope of the REBs must be further expanded; and (d) navratna companies participating in the power development programme must be strengthened, all divestment measures therein stopped, their management improved with the participation of state governments and employees at the board level and their accountability to the parliament enhanced.