Powerful worries

The fact that eight state electricity boards (SEBs) are approaching the ministry of power to ask for more time to unbundle their operations does not look like being very bad news, even though the unbundling into separate generation, transmission and distribution companies was supposed to have been done by 2004, under the new electricity law of 2003. For while the list of recalcitrant states includes big ones like Bihar, Kerala, Punjab and Tamil Nadu, the ones who have already done the needful include equally big states like West Bengal, Orissa, Andhra Pradesh, Uttar Pradesh, Rajasthan, Gujarat and Madhya Pradesh. Couple this with the power secretary's assertion that the country will become energy-surplus in another five years, and it looks as if the country's power situation may be in for a transformation, even though the current energy shortage is around 10 per cent on average, and 14 per cent at peak hours.

It is possible that, with suitable incentives, the government may still get these states to unbundle their SEBs. But as the experience of Delhi's unbundling, coupled with the privatisation of distribution, has shown, unbundling is only the first step in a tough journey. The average transmission and distribution loss (which includes the theft of power), when Delhi began its unbundling, was over 50 per cent. After unbundling the Delhi Vidyut Board, the Delhi government sold the three distribution companies, gave generous subsidies to cushion the price impact, and (after a delay of four years) even set up special courts to try people for power theft. Despite this and the small geographical area being covered, Delhi's private firms have been able to reduce the losses to only 32-33 per cent. If one then looks at the size of the areas covered by SEBs in the larger states, and the preponderance of rural demand in many of them, it becomes clear that getting transmission and distribution losses down to the 15-20 per cent range could take up to a decade, or longer.

In theory, once SEBs are unbundled and a regulatory system put in place along with independent fixing of tariffs, the system is ready to roll. But as the Delhi experience shows, real life reform is not so cut and dry, for the regulator too tends to look at the political feasibility of an order before passing it! In Delhi, when the regulator felt the hikes that were required in power tariffs were too high, he simply decided to impound some of the gains to the distribution firms and called them a "regulatory asset", to be given back to them with an interest component at a later date. When a power tariff hike was eventually deemed inevitable, the Delhi government said it would absorb half the hike and forced the companies to absorb the other half. As a publication by Navroz Dubash and Narasimha Rao points out, the electricity regulators in other states have suffered a similar fate""the Andhra Pradesh regulator found that several of his directives had not been complied with, so he simply stopped tracking them after a few years. In Orissa, held to be an example of successful power reforms, the large sums of money earned by exploiting the desperation of power-starved states may not be available any more as the price of inter-state sale of power is now under regulatory scrutiny. Taking all this into account, especially in a sector where the average return on investment in 2006-07 was minus 27 per cent, it is difficult to be convinced by the rosy projections held out that plentiful power will be available in a short span of five years.