People's Democracy

 Power Sector ‘Reforms’ And Their Dangerous Implications

                                                                                     E Balanandan

WE use power for one hundred and one things in our daily life, and we all know the fatal consequences any mishandling of power brings. At the outset it must be stated that the rulers at the centre and in many states are handling the power sector without the required care, leading to adverse consequences.

THE SYSTEM AS WAS VISUALISED

In today’s world, availability of power is a must for a decent human existence. And for a country like India with over one hundred crore people, the approach must be that power is made available to the people at an affordable cost. To provide this amenity must be the responsibility of the government at the centre and in the states. The basic ingredients for large-scale power development to ensure power for all are available in the country. The hydel resources, coal, lignite, natural gas, etc, are available in abundance.

The facilities which we have created for developing nuclear power, besides our developed power engineering industry which can design and manufacture power machines, are of international standards and price-competitive. We have highly skilled engineers, technicians and other experts in abundance, besides an experienced work force. They are valuable assets in themselves. Therefore, with careful and planned handling of the power sector, we can definitely achieve our national objective of ‘Power for all, power on demand, steady power, and power at an affordable cost.’ But what is lacking is the required political will. Nay, today, the rulers are seeking to change the objective to ‘one who consumes should pay for it.’ In other words, one who has money alone will get power.

From the very beginning, our planners had the understanding that power must be developed in the shortest possible timeframe to cater to the needs of self-reliant development. With this aim in view, they created the required legal framework and organisational set-up. Thus were created the Electricity (Supply) Act, the Central Electricity Authority, the regional electricity boards and state electricity boards etc. Looking back, pundits may find loopholes in the system, the correctness of which we would not question here. What we definitely emphasise here is that the system has worked more or less smoothly to the advantage of our national development.

The power sector has achieved an annual growth rate of 7 per cent. Our peasants were given power at a low cost or even free, leading the Green Revolution to succeed. Self-sufficiency in food was achieved. We have also built our own industrial base. Though shortcomings may be found in many areas, successes of the system were not questioned till 1991.

BITTER LESSONS OF ‘REFORMS’

But then, from 1991 onward, we embarked upon a new path, based on the IMF-World Bank prescriptions. They made us change the whole policy frame and introduce power sector ‘reforms’ with immediate effect, the corner stone of which was privatisation of the power sector in the country. The then prime minister Narasimha Rao agreed to the conditionality they proposed. But the implications of these policies were disastrous for the power sector.

As a part of the power sector ‘reforms’ to attract private entrepreneurs, the government of India sought to change the existing system and offered new concessions to them while reducing the share of public investment in power development. Private producers in the power sector, Indian and foreign, were offered a 16 per cent return on investment and an increase in the rate of depreciation to 8 per cent from the existing 3.5 per cent, besides many other concessions. Many private operators signed memoranda of understandings with the government of India, though a number of them disappeared from the scene before completing the projects. The Enron came forward for a 1,440 MW power project at Dhabol. The Narasimha Rao government negotiated with the corporate giant but the agreement could not be finalised due to various reasons. But during his 13 days rule in Delhi, Vajpayee hurriedly cleared the project.

The story of Enron needs no elaboration since it is public knowledge now. The Maharashtra State Electricity Board (MSEB), which was producing power at less than Rs 2 per unit, was forced to buy power from Enron for Rs 6 to 7 per unit. Finally, the MSEB had to stop buying this high cost power and the Dhabol project came crashing down, as there were no takers for this high cost power. All of a sudden the Enron, the biggest multinational operator in power sector, went bankrupt. The project has not been revived to date. The demise of Enron is unique in the history of big multinational corporations and spelled disaster for the world capitalist order. The treacherous account manipulations resorted to by the Enron management to cheat its millions of share holders, has no comparison in history. None can forget the treachery and trickery they resorted to. 

The privatisation of power sector in Orissa, was once claimed to be a model for India. But it also met with the same fate. The whole project has misfired. The committee appointed to examine the performance of private operators in the field found that rural electrification has become a causality, efficiency in power dues collection has not increased, power theft has increased, and there is no reduction in transmission and distribution (T&D) losses. Over and above, the cost of power has risen by as much as 367 per cent. The private distribution companies have failed to pay for the power they purchased from the government owned GRIDCO. In short, the private companies have failed in all respects and some of them had to leave Orissa abruptly. Now the committee has made a new proposal to pump in Rs 3,240 crore more for the power sector in order to make the ‘reform’ process a success.

The recent privatisation of Delhi Vidyut Board was a highly dubious operation. The agreement was that the private distribution companies would buy power from the state owned TRANSCO at Rs 1.32 per unit but sell it to consumers at Rs 4.16 per unit on an average. Also, the government owned Jal Board would pay Rs 6.52 per unit, and the municipal corporation Rs 6.92 for street lighting. How these figures were arrived at, is a secret. In sum, privatisation has made the people of Delhi pay through their noses for the power they are consuming.

Under the centre’s pressure, the so-called ‘reforms’ are being introduced in state after state. They are trifurcating their electricity boards and privatising the parts one by one. The immediate effect is a hike in power tariff to unaffordable levels. The tariffs for industries, which were below the international levels, have now gone higher. As a result, fresh investment is not taking place in the industrial sector, especially in manufacturing. Even Indian industrialists, “known for their patriotism,” are investing their capital outside India, where power is cheaper. 

The power rates for agriculture are also being increased in every state, as a part of the ‘reforms.’ It would only jeopardise our food security and lead to large-scale paupersation of peasantry. In short, these ‘reforms’ would spell disaster for the country.

POWER SCENARIO

Let us have a close look at the power scenario in the country, based on the Planning Commission figures. The total installed capacity as on March 31, 2002 was 14,9017.1 MW. Of this, the share of hydel power was 25.03 per cent, steam 59.22 per cent, gas 10.64 per cent, nuclear 2.59 per cent, while diesel and wind power accounted for the balance. During the eighth plan (1992-97), addition to installed capacity was 16,422.06 MW as against the target of 30,538 MW ---an achievement of only 53 per cent. The ninth plan target was 40,245 MW while the achievement was only 19,015.1 MW. The private sector’s failure was the main cause of non-realisation of targets under these two plans. Ignoring this fact, however, the tenth plan (with the target of 46,939 MW) began by giving a sizeable share to private operators. The actual supply position in March 2002 indicated an energy deficit of 7.5 per cent and peak deficiency of 12.6 per cent.

The average power cost during the last one decade has increased from 108.8 paise per unit in 1990-91 to 350 paise per unit in 2001-02. The Planning Commission has indicated that the tariff charged from industrial and commercial consumers in India is among the highest in developing countries. (See the table alongside.) As many electricity boards resort to load shedding in peak hours, many industries went in for captive power plants, lowering the share of industrial consumption in this period.

The power rates for industries are now higher in India than what they were a decade ago. In an article published in Business Standard (October 8, 2002), Ashok Desai mentioned about the flight of capital from India to other countries where industrial power is cheaper. He has given the example of Tatas who are taking the ferro-chrome ore from India to South Africa for refining as the power cost is lower there. And not only the Tatas; many big business houses are looking for investment opportunities abroad and virtually no one seems to be thinking of making investment in the country. Foreign investors are also shy of putting their money in manufacturing industries in India. This is a serious situation as a process of deindustrialisation has begun. The adverse effects of hike in power rates on industries in Kerala are there for everyone to see. Most of the big industries in the Ernakulam belt are in a serious crisis and on the verge of shutting down due to the heavy power rate the Kerala government has imposed.

According to the CEA estimates, per capita power consumption in our country was 334 units in 1996-97 and about 350 units in 2002 --- one of the lowest in the world. The average per capita consumption of power at present is 757 units in developing countries and 746 units in China. India’s consumption of power is thus only 50 per cent of that in China. The per capita consumption in OECD countries ranges from 6,897 to 8,675 units. The world average is 2,074 units.

ELECTRICITY BILL 2003

It was in such a context that the parliament has finally made the Electricity Bill 2003 into it a law. The main objectives of the law have been specified as such --- to consolidate the existing laws on electricity sector, develop the industry, promote competition, protect the consumers, supply electricity to all areas, rationalise tariff, ensure transparent policies on subsidies, and constitute a Central Electricity Authority, Regulatory Commissions, Appellate Tribunal etc. The act was designed as per the IMF-World Bank dictates, without proper study by utilising the expertise available in the country.

The fundamental change the law seeks to impose is to privatise the power sector and transfer the huge wealth of state electricity boards to private operators at throwaway prices. The government is to give up the responsibility of power development.

But the experience so far conclusively proves that the sector’s privastisation will immediately take the power rates to sky-high levels and the power targets, as contemplated by the government, will be torpedoed. This will result in increasing power deficiency, the crisis will affect our development, and this again will be utilised by private companies to hike power rates and boost their profits.

Privatisation will thus bring in chaos in the sector.  No one will be responsible for the country’s speedy electrification or for providing electricity to the people on demand and at affordable rates. The provisions of the law will also divide the country into urban and rural, into industrialised posh areas and the rest. Naturally, the private operators will concentrate only on urban areas. This will be ruinous for India since our economy even today largely hinges on agriculture. Providing for or restoring power supply in areas where the system has damaged or collapsed due to natural calamities has been excluded from the distribution companies’ responsibility. Who will take this responsibility, remains unanswered. The time tested state electricity boards are to be dismantled and the power of the Central Electricity Authority reduced.

The government has also ignored the vital, unanimous recommendations made by the parliamentary standing committee. It pushed the bill through with the help of the Congress party that is as subservient to the World Bank-IMF and Indian monopolists as the BJP and NDA are.

Yet, as the IMF has itself admitted in its latest report, the policy prescriptions it mandated especially for weaker nations went against their interests. Yet, ignoring this fact, our government followed the IMF’s dictate that will definitely put the country’s progress in reverse gear. Nor did the government pay any heed to the protest registered by electricity employees and engineers together with large sections of people

In this circumstance, employees and engineers working in this key sector will have to seriously think what to do to save the country from the imminent danger. This means that an all-embracing powerful movement is a must for forcing the government to change this policy. Or else the government itself will have to be changed, in which electricity employees and engineers too have to play a role.

UNMISTAKABLE CONCLUSION

The above description shows beyond doubt the new power policy being pursued by the government of India is not taking the country forward. The privatisation route the government has embarked upon is leading the country to a serious power crisis. Though a detailed alternative programme is out of the purview of this note, certain broad indications may be given. Power must be retained in the public sector, with the objective of power for all in the shortest timeframe and an emphasis on industrial and agricultural development. Big subsidies are given to agriculture the world over, including in the most developed countries. To continue our country’s self-sufficiency in food production, the agrarian sector must have highly subsidised power. Industries must get power at competitive rates. We have to gear up our power production by the least cost route, so that every nook and corner of the country may have access to power. Private entrepreneurs may also come forward once they find that the cost structure is attractive.

The present ratio of our power mix needs an immediate change within a short span of time. We have to avoid using hydrocarbons to the extent possible. In our power development strategy, hydel power must get maximum priority and its proportion must be raised to at least 40 per cent. The Chinese example may be illustrative. They are harnessing all the water resources for power generation and this will enable them to become the cheapest producer of energy in the world.

The national and international experience is that power sector privatisation cannot protect the people’s interests. Power industry has its own peculiarities. Power cannot be stored; the power generated has to be consumed. While the private producers want to get maximum profit, the consumers’ interest is that they must get power cheap. Hence private ownership in this essential utility will not help the people. Demolishing the time-tested structures like the CEA, regional electricity boards and state electricity boards will be suicidal. Instead, the deficiencies in the system need to be remedied with appropriate measures, and with the cooperation of engineers, technicians and workers in the field.

Domestic and Industrial Tariffs: Developed Countries and India

(All figures are in Indian currency)