Privatisation of Delhi Vidyut Board in 2002 was a watershed development in the country’s power distribution reform. Its successful implementation was expected to encourage other states to move toward distribution reform given the unsustainable commercial losses of state electricity boards (SEBs). However, that has not happened. States still find distribution reforms politically difficult to implement. Populism continues to prevail over economic prudence when it comes to the power distribution reform.
Even in Delhi, public acceptance of privatisation remains low despite the fact that quality of power supply and customer care has significantly improved in its wake. Moves by discoms to seek tariff hikes are usually met with public resistance.
The situation is likely to worsen in coming year as cost of electricity generation is rising fast in the country due to increase in cost of fuel as also because of rise in power equipment price. That aside, the government’s plan to increase share of renewable power in the country’s electricity mix can significantly raise power purchase cost of utilities ?in coming years.
SEBs’ aggregated commercial losses still remain in the range of 30% despite huge spending by the central government under accelerated power development and reform programme (APDRP). SEBs’ losses in the fiscal 2009-10 are projected to have hit Rs 70,000 crore.
The emerging scenario brings to the fore the urgency of building a national consensus over privatisation of power distribution in the country given the critical role of privatization in turning around DVB’s financial health as also quality and reliability of electricity supply in the capital.
In his recent book Reforming Power Sector Reforms: Multiple Conflicts, Democratic Solution, Harish K Ahuja has pushed for ?adopting a democratic rather than top-down approach to power sector reforms. The author, a civil servant, has seen privatization of DVB from close quarters as a deputy secretary in the department of power, Delhi. He has also served at key positions in joint electricity commissions of UTs and Goa. His suggestions are based on findings of a research work undertaken by him.
Specifically, the author has suggested adopting an approach based on transparency in functioning of utilities , consumer empowerment and public participation in decision-making to provide legitimacy to the privatisation process.
The author has suggested public listing of distribution companies to bring transparency in their functioning and build public confidence.
The author used research tools like ?Social Multi Criteria Evaluation (SMCE) and Novel Approach to Imprecise Assessment and Decision Environments (NAIADE) for evaluating the success of power reforms in Delhi.
Any move to impose reforms on electricity consumers is likely to yield sub-optimum results and could unravel later even if initially successful. Interests of consumers and utilities do not always gel. Conflicts of interests are likely to emerge. Fixing power distribution requires economic management but also public support.
?In case of Delhi power distribution reform, it can be summed up that while major achievements have been accomplished, and the new regime certainly is an improvement over the DVB, important issues threaten its direction and sustainability,? the author says. It is not that starting privatization is difficult, ?sustaining it could prove even a bigger challenge.
The multidimensional nature of the power sector calls for a design of reform which is not based on the conventional reductionist approach. Any unrealistic simplification of underlying complexities could lead to disastrous consequences.
Complexity of state power distribution sector has even eluded policy makers. In the past, the Centre formulated policies to encourage states on reform but had to relax or withdraw them later when it realized the difficulty of state governments.
How strong is the public resistance to distribution reform can be gauged from the fact that the Union power ministry has inserted in the mega power project policy conditionality that to avail mega status, states need to privatize their metros with population above 1 million to avail of this benefit. However, this carrot-and-stick policy of the power ministry has failed to work as most of the states are not in a position to comply with this condition. Unable to sell its reform prescription to states, the ministry has been forced to provide exemption to ensure that its power generation capacity addition programme does not get impacted.
Private participation in power generation capacity addition is rising fast. However, the distribution sector, which is the only point of revenue generation for these investors, is running into huge losses. Most of the SEBs are financially in bad shape. If finances of these SEBs continue to deteriorate at this pace, they might soon become bankrupt.
Private investors are putting their money into power generation and transmission in the hope that the sick distribution sector would be revived. If they lose hope, investment inflows into power generation and transmission would also choke. In that case, it might not be possible for the country to maintain its high-growth momentum. Time is running out for states on power distribution reform. Ahuja’s book should be a good reference document for power sector policy makers in states.