The politics of power

Reforms in the power sector continue to be perceived as the responsibility of the state governments and despite the central government having got the mandate to push reforms by enacting the Electricity Act, 2003, the sector is far from improving.

Recently, the prime minister had to tell the power secretaries of state governments that free power supply was not going to help in improving the situation. The PM also admitted that the power sector has failed to attract private investments. The Centre, sadly, has been sending confusing signals to the states.

Since coal and electricity go hand in hand, it is important to look at the coal sector as well. More than 70 per cent of India's thermal power generation depends on coal, and the demand-supply gap by 2006-07 would be anywhere between 41.68 million tonnes and 55.5 million tonnes.

The shortfall of coal for power stations during 2005-06 has already affected power generation quite significantly. While there have been shortages in production from the captive mines, the policies haven't attracted any foreign private players either. Unless the coal ministry gets its act together and gets a credible regulatory framework in place, matters are only going to get worse.

While it took five or six years of debate to finally hammer out a consensus on future policies in the form of the Electricity Act 2003, and the need of hour is to implement this so as to introduce competition in the sector, what we're witnessing instead are major roadblocks.

While the ministry of power has come up with some significant initiatives such as the formation of state regulatory commissions and guidelines for competitive bidding, the government is under pressure to extend the time-frame for introducing competition in the sector, the first step being the unbundling of the state electricity boards.

Last year, the Economic Survey had warned the states that "outflow of resources" to support the state electricity boards would be large as reforms were not being undertaken and the commercial losses were estimated to exceed Rs 22,000 crore (Rs 220 billion) in 2005-06.

But instead of corrective action, what we saw last year was a free play of competitive politics. States like Andhra Pradesh and Maharashtra -- the former was on the reform course in the previous two years and the latter toyed with a hybrid model for restructuring its SEB -- revived free power in the name of poor.

The supply of free power naturally led to its indiscriminate use. In the case of Andhra Pradesh, demand rose by 20 per cent and in Maharasthra the peak shortage increased to 3,500 MW for the same reasons.

Since the states have had to pay for this, the Maharashtra government had to pay an additional Rs 1,700 crore (Rs 17 billion) his account (apart from the 3,500 MW peak power shortage in the state) while the additional cost in Andhra Pradesh was Rs 300 crore  (Rs 3 billion) for the free supply of power.

The recent crisis is once again a reminder for the ministry of power to take a firm stand on the time-frame for the reforms in the state electricity boards. For the last one year some states have been reneging on the time-frame for introducing reforms and have prevailed upon the ministry of power to give them a reprieve by extending by one year the deadline to prepare reform models for their SEBs.

No substantive progress has been achieved as far as the ministry of power's initiatives are concerned, and the much-publicised incentives under the accelerated power development and reforms programme have failed in getting the states stick to the agreed time-frame.

And once again we find that the government is under pressure from its Left alliance partners to agreeing to extend the deadline for unbundling the SEBs by one more year. If in the last 12 months, no steps were taken to unbundle the SEBs, what guarantee do we have that this demand will not be repeated a year down the line?

The more relevant issue is not whether giving some more time to states will make a great difference, but the important point is that the government has to stay focussed on the time horizon. Let the ministry of power define its time horizon but then proceed with an effective action plan in getting its agenda of reforms implemented.