Flickering hopes

On May 1, the 45th anniversary of the formation of the state, the government of Maharashtra ordered Mumbai's neon signs turned off.

The state faces a power deficit of around 4,000 MW and the government is grabbing at straws, since neon lights account for a tiny portion of total power demand.

And yet, one can hardly keep them on when factories are shutting down for want of electricity. The resulting gloom is a telling reflection of the new economic reality in the centre of India's industrial heartland.

For decades, Mumbai has been the one major city immune from the vagaries of a deteriorating power system.

Its bright lights were the most visible and reassuring manifestation of the city's ability to break free of the shackles that held back every other part of the country.

But, it now appears that the collective weight of helplessness is finally dragging Mumbai down. The optimism of "If Mumbai can do it, we all can" has turned into the despair of "If we can't have it, why should Mumbai?"

The enormous costs imposed on the economy by the condition of the power system have been endlessly discussed in this space and other forums.

It is shocking and surprising that, despite widespread consensus on the nature of the solution and the passage of enabling legislation by Parliament in 2003, the power situation continues to deteriorate.

The faint hopes of an early resolution will now be dashed by reports that the power ministry has substantially scaled down its estimates of new generation capacity to be added during the remaining part of the 10th Plan, which has two years to run.

Against a target of 41,000 MW to be added during the Plan, it now expects at best about 37,000 MW and even this may not be achievable.

Worse, given that there are several structural constraints that account for this shortfall, the hugely ambitious goal of 59,000 MW for the 11th Plan (2007-12) seems completely unrealistic.

The irony is that solutions are both relatively simple and clearly laid out in the central legislation. The commercial viability of generation will emerge when all the power that is generated is paid for.

If a government wants a group of people to get free or subsidised power, all it needs to do is to pay for the power out of its budgetary resources.

Likewise, generators must have the freedom to find buyers with a willingness and ability to pay, wherever they may be. All that is needed is guaranteed access to the grid.

If these two fairly straightforward conditions are not met, more darkness lies ahead. The central government must aggressively persuade states to comply with the necessary reforms.

It is important to recognise that the pay-offs will come far quicker than it takes to set up new capacity. There is substantial capacity in captive power plants, which will immediately come into the market in response to the right incentives.

On the other hand, business as usual will quickly short-circuit even the relatively modest growth objectives that the UPA government has set for itself.