The UPA had a junior minister for power, a retired non-performer for renewable energy and a coal minister who resigned under a cloud. The NDA put its bright ministers in charge of three related ministries—power, renewable energy and coal. There is a holistic approach to the issues but nuclear power must be included, and close coordination with petroleum and gas ministry must be ensured.
India’s energy problems are due to the lack of an integrated holistic vision of the sector, poor attention to detail, and poor planning by governments at central and state levels. The problem is not distribution alone. Its concurrent nature in the Constitution puts distribution and retail tariffs with state governments. The statist philosophy of the Congress led to the continued dominance of the central public sector in generation and transmission, and by state governments in state-level generation, distribution and load dispatch. This led to pandering by governments to their own enterprises.
When independent regulatory commissions for tariff determination were created, they were also almost entirely manned by retired bureaucrats (not economists, management specialists, energy specialists). This made many subservient to governments.
The government allowed high debt (up to 80%) in electricity investments and asked nationalised banks to lend the funds. Today, over R3 lakh crore of bank assets are non-performing. Utilities, especially electricity, are funded elsewhere from long-term savings in pension funds, etc. In India, banks lend for these long-term investments from short-term deposits, and interest costs are high, reflected in power tariffs.
Crony capitalism and non-supply of gas and coal has led to stranded generation capacities. Coal India has reneged on supply commitments of coal, many times of poor quality, with expensive damage to turbines. Open access, freedom to buy from any supplier in India, was disallowed by many state governments, leading to substantial quantities of cheap power left unused.
Piyush Goyal has speedily completed the coal auctions ordered by the Supreme Court. Well over R1 lakh crore from them is to go to state governments. He expects the private owners of these mines to produce 1 lakh tonnes of coal over the next five years. But how these costs will lead to higher power tariffs or losses to suppliers? Coal India has not evidenced any change in its sloth.
Transmission is dominated by the state-owned behemoth Power Grid Corporation. It prevented private investment on any scale. The ministry has now cleared major transmission projects, especially in the south, the area of maximum demand growth. Major projects that would have been grabbed by Power Grid are now open to private investment.
The UMPPs, with generation capacities of 4,000 MW each, placed near coal mines, was an innovative idea. But government clearances were slow, tariffs were fixed for 25 years, imported coal from captive Indonesian coal mines had tariffs raised by that government making power tariff quotes unviable, adversely affecting the market position of the company. Another UMPP based on domestic coal took over the project at the low rate of a disqualified successful bidder. The government apparently asked that tariff remain unchanged. Extra coal reserves in the mines allotted were allowed for another 4,000 MW plant which would have made up for low power tariff. This has been disallowed by the Supreme Court. The UMPP is a good idea gone wrong. The government should have a renegotiation commission in such cases to fix new tariffs despite a signed contract.
We need electricity. A way must be found to use the capacity now built or waiting. We must revive huge unproductive investments. A project with investment of over R20,000 crore and five years of construction should not have expected a ‘levellised’ tariff for 25 years. There are too many unforeseeable uncertainties to make a good forecast.
Issues in distribution are because of poor capacity to pay by distribution enterprises due to low populist tariffs (free to farmers and some others, below cost to many, with collusive thefts galore). Most enterprises (with turnovers of R10,000 crore or more, and thousands of employees) are owned by the government. Most are headed by young bureaucrats for whom electricity is not a career. Under government ownership, there is excessive centralisation, little accountability and collusion in electricity theft. Electricity distribution must be privatised. Until then, they must be run professionally by career managers and without bureaucratic interference.
Independent regulators must be truly so and appointed with care. Being 60 and over or because of 35 years of administrative experience are invalid qualifications. Regulators must be appointed for necessary skills to run such enterprises. They must be made to audit all expenditures of the discom thoroughly. They must be overseen by high courts and any shortfall in performance (including audit) must be penalised.
India’s tragedy is that it has depended on generalists to run large enterprises. The results are there to be seen. Between them and their political masters, they have created a mess that requires careful unravelling.
Goyal has a challenging task ahead. It will take many years of careful efforts to deal with these issues. It must be done holistically, with honesty and implemented carefully with specialist advice.
The author is former director general, NCAER, and was the first chairman of CERC
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