No Commitment To Reform

The sole hope lies in private power generation. There is no dearth of private interest and proposals: in July 1995, there were 243 project proposals for a total of 90,368 mw. But then came the conflict between the central government and Maharashtra over the Enron project, and the number of new proposals, especially from foreign investors dropped dramatically. Despite this on May 31, 14 new private power projects with a generating capacity of 7,706 mw were awaiting the clearance of the Foreign Investment Promotion Board.

If one were to judge by the pronouncements of the prime minister, the finance minister, the energy minister, and the Common Minimum Programme, the UF government can see this as clearly as the rest of the country. But three months have passed since it came to power, and these months have seen no follow up action that comes even remotely close to matching its promises.

 

To understand why this is happening, one needs to know precisely what is delaying private investment in power. Any new power project needs basically four different types of clearance. It must show where it will get its water and fuel from (the fuel linkage); it must get a techno-economic clearance from the Central Electricity Authority; it must get an environmental clearance; and lastly it must sign a power purchase agreement with the state government. Each of these steps is exceedingly complicated. At present companies cannot simply make their own arrangements for fuel. They must, instead, make arrangements with one of the public sector producers of coal or gas or naphtha.

Techno-economic clearance is another hurdle. The law at present requires every project with an investment of more than Rs 25 crore to get the clearance. This is honoured only in the breach for the CEA allows everything up to Rs 100 crore to go through without scrutiny. But that is sufficient only for setting up a 30 mw, i.e captive plant. Environmental clearance has become the rubric under which all movements to prevent the forcible acquisition of land for power plants and other public purposes, have taken shelter. The most complicated is the power purchase agreement, for the SEBs have established an unenviable record for defaulting on their payments to the NTPC and Coal India. Few private producers, and almost no foreign companies are prepared to set up really large projects without getting a counter-guarantee from the central government.

The obvious answer to these problems is to lift all but a few essential controls on the power sector. Private companies would not have to ask for counter-guarantees or even sign power purchase agreements with the SEBs if they were allowed to sell their power themselves. They would not need a fuel linkage clearance if they could buy fuel from anyone they liked. Acquiring land would become easier if power producers could enter into deals directly with the landowners, for instance to use their land in exchange for an annual royalty, instead of dispossessing them altogether. Techno-economic clearance itself would be a far simpler matter if all that the government looked at was the price at which the producer was willing to sell his power, instead at the host of criteria that the CEA is expected to employ today.

A beginning had been made in all of these directions before the UF government came to power. The Enron power project had been allowed to arrange its own fuel supplies. Independent power producers had also been given permission to open up their own captive coal mines. But as a green field mine was not an economic proposition for the quantities that most producers needed, almost no company had taken up this option. Similarly, in order to open the way for private power distribution the Congress government had amended the Electricity Acts of 1910 and 1948. Lastly, several state governments had made a start in privatising power distribution, although none had gone as far as Orissa, which had restructured its SEB, trifurcating it into a generation, transmission and distribution company.

Within a fortnight of the new government's coming to power, in June the new power minister, Mr Venugopalachary announced that he intended to convene a conference of state power ministers to fix a uniform tariff for power supplied to agriculture, with the intention of drastically reducing the subsidies and improving the viability of the SEBs; to privatise power distribution, and to reduce the role of the Centre in granting approvals for private power projects.

But two and a half months later none of these promises have materialised. On July 9, a month after Mr Venugopalachary's policy statement, the secretary to the power department of the ministry said that the government was looking at a policy update that included exempting all projects costing less than Rs 4 billion from having to get the CEA's approval, simplifying the criteria for accepting power tenders and concentrating on the cost of power rather than on calculations of the return on capital, and so on. On July 22, the government announced that it would be amending the 1910 and 1948 Electricity Acts soon. Another announcement was made on August 4, that the SEBs would be restructured on the Orissa lines. Finally, on August 9, the government announced that the prime minister himself would soon convene a meeting of chief ministers to discuss uniform power tariffs. But nothing has been done, and reading between the lines of these announcements, the government has moved imperceptibly back from a simple deregulation of this sector to the complicated and carefully hedged changes at the margin of the existing forest of laws that bureaucrats love, because it keeps the command economy alive, and their power intact. Plus ca change, plus cest la meme chose. The more things change, the more they remain the same.