Apart from the private electricity distribution companies that we inherited at Independence?Bombay (BSES, TATA and the municipal BEST), CESC in Kolkata, Ahmedabad Electricity supply (now Torrent), Rajkot and some others?the only state-owned distribution that were privatised after Independence were Orissa and Delhi.
The Orissa privatisation was a thoughtless exercise, which enabled the state government to earn a windfall income that should have been used for investment in the sector. The Delhi privatisation, however, was a carefully thought out exercise and has saved the Delhi government huge sums of money incurred as losses under state ownership, and the quality of supply has also improved. But Bombay distribution has been in private hands for almost a century now and Bombay has had the best quality of supply. This is verified by the almost total absence of inverters in Bombay, ubiquitous in other places.
Commending MERC for inviting expressions of interest for selection of a power distributor in Bombay in place of BSES, as has been done by Noor Mohammad (FE, November 1), ignores the many other issues that must be tackled before this can be done. Calling for choice at the retail level for consumers requires that supply is abundant. Licensing of multiple players in the same circles to ensure choice ignores the need for infrastructure. Complaining about rising electricity tariffs in Delhi and Bombay because of suspect accounts filed by private companies is libellous. In the power sector, even well-to-do consumers want electricity prices to remain static despite rising costs of fuel, labour, equipment etc. Electricity prices cannot be held back unless the government subsidises prices. Private investors look for returns and cannot hold back prices if costs are rising.
Despite cross-subsidies, the losses of state electricity boards have been rising and are now expected to touch Rs 60,000 crore. State governments are unable to provide the services that they should to citizens because so much of their resources are going towards keeping electricity tariffs low. Many regulators help this by denying legitimate expenses to private and public distributing companies. They keep these expenses in suspense as ?regulatory assets?, which deprives the company of revenue for expenditure incurred, and of cash; worse still, the distributor pays income tax on revenues he has not received.
Mumbai was supplied mainly by one generating company, almost from the inception of electricity distribution. MERC, a few years ago, allowed the three distributors to enter each other?s territories for distribution but did not ensure that the largest supplier would continue to supply as he did in the past. What was being supplied to Mumbai was sold at greater profit outside Mumbai. Further, in much of India, a large number of low-income households are supplied electricity at low or below cost and the loss is recovered from the better-off and industrial consumers. This is the cross-subsidy. When MERC offered choice, this model was broken and the better-off customers were taken away, making the distributor bear the burden of subsidising the poor; MERC had not resolved the issue of cross-subsidy when it offered choice to customers. There is also the question of the infrastructure of distribution wires, sub-stations. The regulator has to compel the owners of the distribution infrastructure to allow the use of their wires by competitors who get away with paying a small rent but do not incur capital costs.
The argument for privatising distribution is that state ownership is inefficient, staff is undisciplined, maintenance is poor, etc. In a shortage situation, choice for customers is the last outcome that a regulator should impose. Analysts who think all competition leads to choice must keep supply in mind. The first priority is to improve supply and quality, while making power available to as many as possible. Choice in the power sector at the retail level, especially for poor households, is a pipe dream. It leads to poaching of paying customers and leaves someone else to supply at low or below cost to the poor.
A priority in reforming the power sector is the privatisation of distribution, a regulatory system that is not afraid to pass on legitimate expenses in increased tariffs, and political leaders, analysts and media that make a real effort to understand the realities in this complex sector.
The author is the first chairman of CERC, independent director on R-Infra and R-Power and an extensive commentator on infrastructure