P Abraham: Electricity reforms just aren't delivering

Twenty five states have formed electricity regulators but despite this there has been no tariff revision for years, which is why losses remain more or less unchanged even today.

The distribution reforms in the power sector were ushered a decade ago, when the Common Minimum National Action Plan for power (CMNPP) was approved by Chief Ministers in 1996.

There are many reasons for the deterioration in the power sector. The neglect of management of distribution over a long period of time was probably one of the major causes. The State Electricity Boards (SEBs) were losing money not because they were not producing enough power, but because they were not charging enough, and collecting even less. They were losing more than one-third of the power they produced or purchased to theft and pilferage. The biggest factor of all was that socio-political reasons consistently got the better of economics. Hardly any political party showed the will to push reforms with steadfastness. The key to the future of the Indian power sector lies in implementation of accelerated reforms in distribution sector.

One of the major reforms in the distribution sector was about the restructuring of SEBs. A monolithic, vertically-integrated, growth-oriented and massive organisation with a vast network providing essential services, was obviously a gigantic task to manage at a single corporate level. One of the major reasons for poor performance has been the size of SEBs, which have become totally unwieldy and unmanageable, with a long span of control. Restructuring of SEBs was naturally considered as one of the primary requirements to turn around the sector. As of now, 13 States have restructured their SEBs. It is worth noting that in many of the states, the reforms were born more out of compulsion than conviction, as they were experiencing a severe cash crunch. The pace of reforms has certainly been much slower than expected, and some states are reluctant to restructure SEBs even now.

Most restructured units lack autonomy and independence and have common Chairman and Board of Directors. There is considerable interference from the government. Hardly any financial restructuring of SEBs was done. In some utilities, CMDs or MDs are transferred frequently. Sometimes, even ministers are appointed as chairpersons of restructured entities. No independent professional directors have been inducted. Many states have failed to establish police stations and special courts to deal with theft. The metering of agricultural consumers has not even been attempted.

In spite of the several measures initiated by the distribution companies, the Aggregate Technical and Commercial (AT&C) losses at the national level continue to be as high as 33 per cent. The commercial losses without subsidy are still more than Rs 22,000 crore. There is no respite from the subsidy regime as the subsidies during 2004-05 were about Rs 34,345 crore including Rs 24,228 crore towards agricultural subsidy. Some states continue to announce free power for agriculture. The uncovered subsidy, remains still at about Rs 24,000 crore. These subsidies should be extended to the targeted sections, as several independent studies have revealed that the main beneficiaries of agricultural subsidies are rich farmers. The overall increase in tariff has not kept pace with the cost of supply, leaving a huge gap between the cost of supply and the tariff. The revenue arrears/receivables are increasing even today. The measures taken so far, are inadequate to control theft and pilferage. There are very few utilities which have done better and there is a wide variance in results from state to state. The power sector is still not out of woods and does not inspire adequate confidence.

One of the primary objectives for establishing the Regulatory Commissions was to delink the state government's interference in the functioning of SEBs and entrust functions, inter alia, including fixation of tariffs in a transparent manner. Twenty five states have constituted SERCs. Many states, however, are not filing their Annual Revenue Requirements (ARR). There are some states where there are no tariff revisions for years. Many of them have not issued multi-year tariffs. Many ERCs give an impression of depending on Government on several matters. Sufficient efforts are lacking in bridging the gap between cost of supply and tariff. Many commissions have failed to increase the agriculture tariff and reduce the subsidy element. In order to increase the autonomy and independence, the Commissions should have their own funds for meeting their expenditure, instead on depending on Government approvals.

The acute shortages in power supply in the country, is a matter of grave concern. The capacity addition has been only 14,342 MW during the first four years of the 10th plan, and only about 6,000 MW of private generation capacity was added during the last decade. The fact that there is hardly any enthusiasm from the private sector, even after reforms in the distribution sector were initiated nearly a decade ago, underscores the greater level of improvements needed in the distribution sector to inspire confidence.

Rural electrification is the responsibility of state governments and state power utilities. According to the new definition, 1,54,230 villages are still to be electrified and the national average of village electrification as on March, 2006 has come down to 74 per cent from 85 per cent. Only five States "" Goa, Haryana, Kerala , Punjab and Delhi( all of them are very small) "" have achieved 100 per cent village electrification. While 56 per cent households have access to electricity in the country, only 44 per cent households in rural areas have electricity.

The central government had launched a new scheme "Rajiv Gandhi Grameen Vidyutikaran Yojna (RGGVY) of Rural Electricity Infrastructure and Household Electrification" in April 2005 for providing access to all unelectrified villages and all the remaining 78 million rural households in the country within five years. In the past, we extended electricity upto far-flung rural areas without caring about the back up transmission, sub-transmission and distribution network. It is therefore necessary to strengthen the transmission and distribution network to ensure reliability of supply of power while undertaking rural electrification.

An important, if not the most important factor, affecting speedy implementation of reforms in distribution sector has been the lack of political will. The real challenge is to develop national political commitment for reforms and go in for the arduous process of tariff reforms, especially in agriculture and domestic sectors, metering of all consumers, reducing and proper targeting of subsidies, to fix cost-related tariffs, and so on. A unanimous and resolute political commitment alone can transform the sector from its current state of affairs. Time is the essence of reforms.

The author is former secretary, Ministry of Power