Is there light at the end of the tunnel?

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The Eighth Annual Conference on Indian Economic Policy Reform on Development Research: Lessons for Indian Policy, held in Stanford University, concluded last week. It is no surprise that electricity reforms figured prominently as an area of endemic weakness in our economic strategy. While the issues and challenges are well-known, the paper of Frank Wolak presented at the conference concentrated on efficient demand management for a more optimum equilibrium between demand and supply of power. The paper suggests going beyond time of pay metering to hourly metering of power and the variations in pricing will minimise volatility of supply and induce consumers to conserve power when its cost is high. Many of these prescriptions may be sensible, but they may not be applicable to Indian conditions. In India, even the coverage of metering is less than complete and issues of free power, cross-subsidy, transmission and distribution losses and open access continue to be the dominant concerns.

The prime minister took some more initiatives to convene a special meeting of chief ministers some time ago on power-related issues. The recommendations contained in the resolution adopted at the end of the conference are more meaningful to our conditions than some of the more refined versions of the power sector reforms.

First and foremost, the goal of power for all by 2012 depends on significantly augmenting generation capacity. Monitoring the timely commissioning of projects by a newly proposed National Power Projects Management Board can reduce implementational delays. Hopefully, the states would heed the advice to create a similar apparatus. Time and cost over-runs of power projects apart from design deficiencies, faulty fuel linkages, tardy land acquisition and failure to assess likely tariffs, all need to be addressed holistically. Even with respect to central sector projects, state governments have a crucial role to play. It now needs to be seen how this Project Management Board is manned, the quality of its coordination and more than anything else, its ability to resolve problems in a timely fashion. Mere monitoring can add to knowledge and enhance expertise but resolving problems, including dispute resolution, is crucial for project management. Hopefully this will not be a mere monitoring body but function as an empowered group. The power ministry must yield authority and space for this body function as an autonomous entity.

Second, the issue of open access in transmission and distribution is predicated on regulators restructuring cross-subsidy surcharge, wheeling charges and flexibility to determine tariff for enabling contractual arrangements with dedicated consumer groups. I am afraid this is beyond the mere regulatory domain. It needs kindling the missing political will. It is this which has delayed greater recourse to open access driven by the clout of the dominant monopoly of the state electricity boards (SEB) in view of their persistent inability to withstand competition. These SEBs will continue to lobby to hinder open access, since the beneficiary consumers are dispersed and cannot counteract the power of the dominant monopoly. The Centre needs to deal with this more firmly, rather than leaving it in to the state regulators.

Third, the current level of AT&C losses amounting to Rs 47,000 crore per annum has been readily recognised as the weakest link in the power system; and the commitment to reduce it to 15% in the APDRP projects needs concerted action. Of course using IT applications for improving the energy audit and franchising distribution is the right route to follow. However, in the past such incentive schemes have not worked. No doubt the adherence by all states to fiscal responsibility in order to avail the benefits of debt rescheduling, disciplines state finances putting them under pressure to reduce subsidies to the SEBs. Nonetheless tariff rationalisation, which increases in many cases, is so deeply embedded in the populous psyche of competitive populism that frequent electoral cycles derail any systematic and sustained effort for a reasonable length of time to make a qualitative difference. De-politicising electricity tariffs requires broader bi-partisan support. Unless the mainstream players are willing to act collectively, it will be unduly optimistic to expect significant positive outcomes. In managing this problem we recognise this is crucial for improving the health of the sector as well as the fact that it is necessary to attract significant private investment. Private investment without a Letter of Credit or some kind of guarantee mechanism, irrespective of their nomenclature, becomes a necessity for private investors to secure financial closure. Nonetheless, mere cocooning and creating firewalls for individual power projects, (mega or ultra) from the more endemic issues of power reforms can only yield short-term benefits.

Fourth, energy conservation measures, namely demand side management needs special focus and incentives both from the viewpoint of power availability as well as managing environmental concern during a period of high economic growth. Even though the prime minister participated in the G-8 Summit, it is a pity that issues of renewable energy were not raised at the power conference. This is despite the fact that climate control is a dominant concern of the G-8. Issues of renewable energy and climate change are important enough to deserve a separate meeting of policy interloculators. There are many more issues like inter se fuel prices and improved demand management through calibration of availability-based tariff, which deserve further consideration.