Inaugurating the first Renewable Energy Global Investors Meet (RE-Invest), prime minister Modi castigated political parties for promising to supply power at reduced rates saying how could they make such promises when the concerned states are dependent on electricity supply from outside.
The remark was targeted at Aam Aadmi Party (AAP) which in its election manifesto, had promised to cut electricity bills by half even as Delhi meets nearly 70% of its power requirements from other states. In 2015-16, its total requirement is expected to be over 6000 MW; so it will draw 4200 MW from other states.
However, it would be imprudent to dismiss this as a political statement directed at AAP alone. Cutting across party lines, Modi was making a much broader point when he opined that ‘during every election, political parties promise free power’ without even ascertaining whether they could arrange supplies.
What he left unsaid is that this very cult of recklessly promising cheap/free power and then proceeding to redeem the promise in an equally brazen manner (showing little regard to available resources) – ingrained in India’s political DNA for generations – is responsible for impairing the ability of governments to deliver requisite supplies on a sustainable basis.
Supply of electricity at heavily subsidized rates to farmers and households (even free in some states) combined with huge transmission and distribution losses – a sophisticated nomenclature for theft – is the root cause of monumental losses of state electricity boards (SEBs) and power distribution companies (PDCs) in almost all the states that have continued for decades.
Perennially faced with cash crunch, SEBs/PDCs are not able to make timely payments to the power generators viz., NTPC and other public sector undertakings (PSUs) as also independent power producers (IPPs). Considering the criticality of power, under political diktat ordinarily NTPC/IPPs are forced to continue supply despite non-payment. This affects their balance sheet and ability to undertake investment in capacity expansion and modernization.
The ability of generators to augment capacity and ensure its optimum utilization (of the total installed capacity of 250,000 MW, electricity actually delivered is only 140,000 MW) is also impaired by grossly inadequate fuel supply linkage as Coal India Limited (CIL) failed to increase coal production to desired level. Besides, 25,000 MW of gas-based capacity is lying idle or running at very low capacity as supplies from KG-D6 fields have virtually dried up (a meagre 10 mmscmd against committed quantities of 80 mmscmd).
About 2 years back, central government approved Rs 200,000 crores restructuring package to countenance the losses of SEBs/PDCs. Under this, state governments took over 50% of their outstanding liabilities. For the balance 50%, they issued bonds to public sector banks (PSBs) on the strength of guarantee given by states. Further, in a bid to reduce the cost of servicing, PSBs were made to accept less than 9% interest on these bonds.
The package required SEBs/PDCs to increase tariff to plug the gap between realization from sales on one hand and cost of purchase and distribution of electricity on the other. They were also required to take steps to eliminate T&D losses in a time bound manner. The objective was to ensure that their operations become viable without requiring any support from the government.
However, things on the ground have not moved as contemplated. Neither tariffs have been raised to fully offset cost increases nor state governments made a dent on T&D losses. While, SEBs who got the package viz., UP, Rajasthan, Punjab, Haryana etc continue to be in doldrums, others like Gujarat, Andhra Pradesh, Tamil Nadu etc are also on the verge of joining the bandwagon.
In 2002, a similar package (involving subvention of Rs 40,000 crores) was handed out to ailing SEBs in the hope that they would stand up on their own and need for support won’t arise in future. That hope was belied necessaiting another bail out in 2013. The way situation in unfolding, don’t be surprised if centre comes up with yet another bail-out in not too distant future.
The ruling political establishment must recognize the inevitability of mounting losses as long as they keep giving subsidized or even free power to farmers and households who account for 30-40% of total electricity consumption. Those losses will not go away even when SEBs/PDCs charge disproportionately high rates from industries and businesses which has collateral damage of making latter un-competitive within India and globally.
So far, Modi has not demonstrated the courage to address this endemic problem head on; or else how come BJP own vision document for Delhi also promised power subsidy (to say that this will be restricted to those below poverty line, does not make it less populist than AAP) and how it allowed Akali Dal in Punjab to make electricity supply free to farmers in that state?
BJP was voted to power on the plank of development and good governance. Development without un-interrupted supply of power for industry, businesses, services and agriculture is unthinkable. Team Modi has already proclaimed government’s commitment to giving required boost to power sector (Piyush Goyal wants to see every household in India without an inverter!).
However, this goal will remain a pipe dream as long as the SEBs/PDCs continue to remain in dire financial straits. Any amount of financial restructuring or even amendments in the Electricity Act (giving right to consumer to choose his supplier, fostering competition etc) will not help in extricating them from the perennial mess unless the political class sheds its age-old trait of promising free/subsidized power.
Modi needs to crack the whip now. With global prices of energy including gas declining sharply and domestic coal for power plants also expected to be cheaper (courtesy successful auction of coal mines linked to power plants following ‘reverse bidding’ method), this is the right time to take a call. He should tell SEBs/PDCs in all BJP ruled states to sell power at rates as approved by respective regulatory commissions. This will enthuse other states to follow suit.
Concurrently, steps should be taken to improve efficiency and reduce cost in the generation, transmission and distribution systems to ensure that electricity is delivered to consumers in a cost effective manner. In this regard, irregularities in functioning of 3 PDCs in Delhi – as alleged by Kejriwal – as also in other states need to be examined and steps taken to remove them.
Modiji must use his determination to catalyse action in these areas as that will deliver fast results in terms of cheaper electricity albeit without support from tax payers money. He should give precedence to these over amendments in the Electricity Act which may take time to yield the desired outcome.
India earnestly waits for some hard play from Modi to put end to the cult of heavily subsidized/free power.