Column: Power reforms; a matter of states

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Updated: April 17, 2015 1:31:23 AM

The Centre must incentivise states for distribution reforms rather than taking direct responsibility.

Management is doing things right; leadership is doing the right things.

— Peter Drucker

During the last 20 years that I have been working in the Indian power sector, the question that has always been in my mind is: “Can the central government really turn around the power sector sustainably?” Many of us might say, “Yes.” But, if this were so, despite serious attempts by the government by providing generous financial and professional assistance to the states, why was another bailout needed through FRP nearly a decade after the earlier one? Or why so many states still have high commercial losses and even after “independent” state regulators tariffs are not cost-reflective? Or why “power for all by 2012” failed and still so many people live in the dark? Or even when power is available at low prices and many commissioned projects without PPA are stranded, why despite GoI, the states are not coming out with bids for purchase of power? The list goes on. If business as usual continues, “power for all by 2019” may also not materialise. The key to this problem is reform for “distribution” which state governments alone can do.

In my opinion, sustainable progress can happen in the sector if, and only if, states themselves want this to happen. If states really want, whether GoI helps or not or whether finances of state permit or not, they will find way to make their power sector vibrant delivering affordable and reliable power. When Gujarat resolved to turn around its power sector, it achieved that over the last decade by taking tough decisions. “Expensive” renewable power also increased as share of electricity consumed. Support from GoI for this turnaround was minimal, but still the turnaround happened. Let me put it the other way, even if GoI wanted to not let Gujarat power sector turn around, it could not have stopped this as the state’s political leadership really wanted to give its people 24×7 reliable and affordable power.

If “power for all by 2019” too fails, states may find it very convenient to put the blame of their dilapidating power sector on the shoulders of Centre and ask for yet another bail-out package. If states realise that another bailout will not happen and that their power sectors are their responsibility only, I think the battle will be half won already.

Approach of GoI towards distribution reforms has been proactive, providing substantial financial assistance through schemes like Deendayal Upadhyaya Gram Jyoti Yojana and Integrated Power Development Scheme. For these two schemes itself, GoI has approved outlay of over R70,000 crore, of which nearly R60,000 crore is through budgetary support. Every state has its own demographics and geographical set up. Segregation of feeder lines for village homes and farmlands may well succeed in Gujarat, MP or UP but may not necessarily be an economically viable idea for hilly states. What can work in one state may not work in another. Central schemes, however, are sort of one-size-fit-all approach. While distribution network may be laid under a central scheme, if villages don’t receive electricity, the frustration may be even higher than when the lines were not there. Uncharged lines also run the risk of being stolen.

GoI should be more focused on PM’s call of “minimum government, maximum governance” by providing the right policy framework and financial incentive based on sound and quantifiable criteria and leave it to the states to figure out a way for themselves—the onus for improving or deteriorating situation lies squarely on the states. GoI may stay away from schemes for distribution and supply within the states’ jurisdiction or for laying intra-state transmission lines. It rather should use its might more for projects like smart cities, railways or other such important projects of common cause which need to be islanded for supply of electricity from sources other than those falling under the jurisdiction of the discoms. This is possible under the Electricity Act.

What, then, can GoI do to incentivise distribution reform? The goal of any reform in the power sector would be to ultimately provide affordable and reliable power and improve per capita consumption across all sections of society with a good share of renewable power. GoI may provide incentives to states which fare well on these criteria. A model, for example, could be that for growth in electricity consumption (billed and revenue collected and not only supplied) beyond the base level of, say, as on March 31, 2015, GoI may give R 1 per unit for rural areas for a state and for urban areas R0.50 per unit. An additional amount could be given for increased level of renewable power consumption. All these would be easily quantifiable. India is estimated to have generated around 1,050 billion units in FY15. Assuming a 10% growth in electricity generated on a y-o-y basis with rural sector share of 40% and incentivising also for higher renewable purchases; over the next 5 years around R60,000 crore will be the incentive required to be disbursed by GoI on the basis of these criteria—more or less the same as current spending on central schemes for improving distribution. GoI may only monitor to the extent that the money so disbursed is used in the power sector only and leave the rest to the states.

To increase its share for the incentives, and for that increase the level of consumption, a state will have to provide affordable and reliable power and reduce inefficiencies in the distribution system. To earn the incentive from GoI timely, discoms will have to do yearly audits in time. So, with right incentives, states could in turn get motivated to do things which a healthy power sector needs. Economically-backward states may also not suffer as the baseline data for them will be low and they can deliver higher y-o-y growth compared to their prosperous peers—no complaints of “step-motherly treatment”.

The moot point is that the commitment should come in state machinery itself that they have to improve the sector and GoI should ideally build the incentive schemes to catalyse this commitment rather than taking direct responsibility for schemes to improve the distribution system. Initially, it could be a slow start, but once the concept catches, there will be no looking back.

Tantra Narayan Thakur

The author is former CMD, PTC India Ltd

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