The government's reported plan to come up with some guidelines to stop power firms from 'cherry-picking' the most profitable areas "" in the sense of applying for a distribution licence "" is a bad one. | |
| For one, it represents a move back to the licence-and-discretion raj, as the government will now be in a position to allow or block access to firms that want to begin distributing power in various areas. |
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| Not allowing a second distributor in areas like Delhi, for instance, will mean allowing a higher profit for the existing player, while allowing another entrant will clearly lower monopoly benefits. |
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| The move, it appears, has been prompted by Reliance Energy's application for distribution licences in high-value areas currently serviced by the MSEB and BEST in Maharashtra. |
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| Second, and more important, the distribution end of the power business is monopolistic at present "" either the SEBs or just one private player is involved "" and one should provide for new players. |
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| The real solution, as this newspaper has argued before, is to allow full competition through what's called 'open access', or allow consumers to be able to choose if they want, to get electricity from firms like CESC or Tata Power to flow into their houses on their Reliance/SEB power lines. |
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| Since SEBs overcharge industrial consumers around Rs 8,000 crore a year (and use this to subsidise household and rural power), allowing just open access will clearly trip up the sector. The solution is to levy a surcharge on the open access to smoothen the transition. |
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| So, if Company X wants to enter the distribution business, it will have to pay a surcharge to the existing player (either the SEB or the private one) to allow it to discharge its social obligation of providing below-cost electricity to various sections. |
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| The closest parallel to this, of course, is the Universal Service Obligation (USO) of the telecom industry, where all players contribute a percent of their revenues to the fund, and this is used to fund provision of telecom to far-flung areas. |
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| Another variant could be to create something like the Access Deficit Charge used in telecom, to fund losses incurred from operating uneconomic services. |
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| In each case, the cess would have to be reviewed periodically, to ensure that it doesn't become some kind of monopoly rent for the incumbent players. |
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| Essentially, allowing more competition is among the things that the government needs to do if it wants to fix the power sector. |
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| Tinkering around with the rules, like coming up with guidelines on cherry-picking, or allowing a second player but not a third, and so on, will only make things worse. The best example of just how wrong things can go under private monopolies, of course, is Delhi. |
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| While the government promised huge efficiency gains through the private monopolists, it earmarked Rs 3,450 crore subsidy to take care of the interim period till the gains kicked in. |
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| Today, however, three-fourths of the subsidy is already spent, and going by the projections made by the private firms, a 20 per cent tariff hike may well be on the cards in April unless the Delhi government gives some more subsidies. |
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