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Can Rajasthan show the way on power reforms?

The state desperately needs to cut transmission losses and raise tariffs to meet targets under the Centre's UDAY scheme


Sahil Makkar & Shreya Jai  |  New Delhi 

Can Rajasthan show the way on power reforms?

The Rajasthan government recently invited bids for distribution in Kota and Bharatpur for the next 20 years. Under the terms of the agreement, the distributors will be allowed to use the existing infrastructure and will collect the state-determined tariff from consumers.

Rajasthan government bureaucrats say they want to replicate the famous Bhiwandi (Maharashtra) model where private distributors turned things around by reducing the very high levels of transmission losses.

"We are not looking at complete privatisation but we need to bring down our technical and commercial losses," says a senior state government officer requesting anonymity. Currently, the state has offered Kota and Bharatpur to private distributors; at a later stage, the scheme could be extended to the rest of the state as well.

For the Vasundhara Raje-led Bharatiya Janata Party government, this is yet another attempt to involve the private sector for the delivery of a service after healthcare and subsidised ration.

Distribution reform, especially the reduction in transmission losses, is critical if Rajasthan wants to be a part of the Ujwal Discom Assurance Yojana (UDAY) of the Centre which is aimed at revitalising the loss-making and debt-laden distribution companies in various states. At the moment, Rajasthan is groaning under a debt of Rs 80,000 crore - the highest for any state in the country.

The UDAY scheme entails central assistance for states that are able to meet milestones for cutting transmission losses and raising tariff. Rajasthan has its task cut out. But given the track record of its discoms and political compulsions, both the targets seem overambitious.

In order to continue borrowing from the banks and other institutions, the discoms have to lower their transmission losses from the current 25 per cent to 15 per cent by 2018-19. Data analysed by Business Standard suggests such a reduction will be a huge challenge for the discoms: they took eight years to bring down their transmission losses by 10 percentage points, and are now required to cut losses by another 10 percentage points over the next three years.

Can Rajasthan show the way on power reforms?
A tough act
The stiff target means the state government will have to launch a massive crackdown on those who steal power, install an electricity metre in each house, improve collection of dues, and upgrade its last-mile supply infrastructure which includes laying underground cables. If the state does manage to complete this mammoth exercise, without incurring the wrath of the voters, it will end up saving around Rs 4,700 crore.

The other way around is to outsource power distribution to private companies on the lines of what has been done in New Delhi and Mumbai. This is the route that the Rajasthan government seems to be taking with its attempt to privatise distribution in Kota and Bharatpur.

The important question is: will privatisation help it cut transmission losses?

"Recent experiences across states have been mixed and (privatisation) has not got full political buy-in. It has been successful in Maharashtra and Bihar, but Madhya Pradesh has terminated all the three distribution franchise. Now, Rajasthan is making attempts to get in distribution franchisees, and Odisha is trying to privatise its Central Electricity Supply Unit," says PwC Partner (power and utilities) Sambitosh Mohapatra.

State government officers say they had in the past tried to involve the private sector using a franchise model but all their efforts failed as the prospective bidders felt it was not a viable option for them.

Last year, the state had invited bids for power distribution in Kota, the third largest city in Rajasthan after Jaipur and Jodhpur, but the offer didn't elicit much of a response from the power distribution companies.

Though the state has taken a series of measures, including passing of the Rajasthan State Electricity Distribution Management Responsibility Act 2016, to hold power distributors accountable for their performance, its inability to increase power tariff over the years has resulted in the huge debt overhang.

This perhaps prompted the Union ministry of power, coal and renewable energy to exhort the state to "enable provisions for quarterly revision of tariff to mitigate the cost increase burden". However, increasing tariff is easier said than done.

The politics of power
The Raje government, which came to power two years ago with brute majority, did raise the tariff by 16 per cent in 2013-14, but her party lost three of the four seats in the subsequent by-elections. Raje's government didn't raise power rates in 2015-16, which was when the state was holding municipality and panchayat elections. Her party recorded victory in both the elections.

The results of the by-elections and the power tariff could be coincidental, but they clearly suggest that power tariff is a potent electoral issue and that's why successive governments have dragged their feet on increasing it.

"The primary reason for increasing the loss from 2003-04 to 2008-09 was that there was just one tariff rise during the period (in January 2005)," the state government said in its "24X7 power for all" plan submitted to the Union government.

It has now become imperative for Rajasthan to meet its target under UDAY to avoid a bigger and more serious crisis in its power sector after three years. It is expected that the interest burden arising due to taking over 75 per cent debt of discoms debt (or Rs 60,000 crore) will further restrict the fiscal space it has for funding development programmes.

"If a state does not get its finances in place and does not meet the reforms as suggested by it, no future lending would be extended to the discom," says a senior Union power ministry official.

It will serve a double blow to the state, which will have to provide operational costs for running its discoms besides servicing the interest burden.

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First Published: Thu, May 12 2016. 11:07 IST