Punchups mar power privatisation

It is rough being an employee of Torrent Power Limited in Agra. Furious residents regularly take staff of the power distributor hostage or beat them up, stone-throwing mobs besiege the firm’s high-walled compound, and one official recently had to be hospitalised after he was hit on the head with a brick.

On some days, there are more than 10 protests staged around the city against Torrent, which won the franchise to supply power to Agra in 2009. When it took over, rampant theft and a failure by authorities to crack down on defaulters meant that 70 per cent of electricity consumed in the city was not paid for.

But Torrent’s efforts to make customers pay have triggered a city-wide backlash and a storm of claims that it over-charges, uses heavy-handed tactics against defaulters and deliberately curbs the number of hours of electricity a day to save money. “Torrent is cheating people and that has made them angry,” said Ram Shankar, the member of parliament for Agra, who says he receives up to 15 complaints a day from constituents unhappy about the penalties. “If they don’t attend to people, they will be beaten up.”

The company’s defence that it inherited a ramshackle network suffering from years of under-investment and that the blackouts are beyond its control, has fallen on deaf ears. Torrent’s woes in Agra, home to the country’s most famous monument, the Taj Mahal, illustrate how India’s efforts to modernise its economy are often thwarted by local politics that feed on fear of change.

It is also a cautionary tale for the government, which has unveiled a bailout plan for debt-ridden electricity distribution companies, most of which are owned by states, and made it a condition for them to look at adopting the distribution franchise model to help slash massive losses.

The electricity distribution companies are at the heart of the power crisis and were blamed for one of the world’s worst blackouts in late July, when three of India’s five transmission grids collapsed, cutting electricity to states where 670 million people live, more than half the country’s population. The companies have racked up losses of more than $46 billion because of unrestrained power theft, leakage from a poorly maintained network and state governments’ reluctance to raise tariffs to meet higher generation costs. Politicians fear a revolt by voters, many of whom view free electricity as a right.

If tariffs had risen in line with other household expenses over the five years to March 2010, the distributors would have turned a profit of Rs 10,000 crore instead of an aggregate loss of Rs 87,300 crore over the same period, according to rating agency CRISIL.

Shady middlemen, illegal hookups

Privatisation, in particular the franchise model, is seen by many as key to solving the crisis. But as Torrent’s experience in Agra shows, it is hugely risky and a hard way to make money.

To succeed means upending a deep-rooted culture of non-payment and getting the support of populist-leaning state governments, according to dozens of government officials, company owners, politicians and industry analysts interviewed by Reuters. Private power companies that dare to venture in face a complex web of political patronage and deep-rooted corruption involving shady middlemen who organise illegal hookups to power-lines, pay government officials to settle bills for smaller amounts and, for a fee, will keep creaky transformers running.

“To bring about privatisation requires enormous political will,” said Torrent Director Murli Ranganathan, during a Reuters visit to the company’s office complex in Agra. “Without political will, without administrative support you will not be able to convert this model into success.”

On the face of it, media-shy Torrent Power seems to be acutely aware of the political environment in which it operates.

Torrent Power, which has a market capitalisation of $1.5 billion, is headquartered in Gujarat and is perceived by opposition politicians there as being close to Chief Minister Narendra Modi, who is viewed as a strong contender to become the next Prime Minister.

Ranganathan sounded frustrated that things were not going according to plan in Agra, and said he was pushing the local government to set up special police stations and courts dedicated to prosecuting electricity theft. Similar setups in Gujarat and Maharashtra had proven successful, he said. “If the law is strong enough, then local politics doesn't matter,” he added.

A few days before the interview, a group of stone-throwing protesters had gathered outside the compound, the latest in a series of such incidents. When Reuters visited, a guard standing behind a heavy metal gate had body armour, a heavy stick and a rifle piled nearby.

Staff beaten, kidnapped

Ranganathan insisted the company was happy with the support it had received from Uttar Pradesh’s new chief minister, Akhilesh Yadav, whose party won a sweeping electoral victory in the state this year and like all parties in the country is protective of its support base, or “vote bank”.

Yadav, however, told Reuters he is renegotiating the terms of Torrent’s contract to supply power to the industrial city of Kanpur because he does not “want a repeat of Agra”. Despite winning the contract in 2009, Torrent has not received the final go-ahead to start operations in Kanpur, the largest city in the country’s most populous state. Ram Shankar boasted of organising violent protests outside Torrent’s offices. “We camp at their office. Most employees run away. Those who are left behind get beaten up,” he said.
Torrent officials said some staff raiding homes to disconnect consumers for non-payment had been taken hostage by residents, usually for several hours at a time. Others had been held to highlight complaints about delays in dealing with power cuts. Yet more employees had been beaten or punched.

The other side of the story

Agra, however, is only one side of the story of India’s experimentation with the distribution franchise model. The other half of the tale involves the same company but a different city, Bhiwandi, on the outskirts of Mumbai.

Given Torrent’s travails in Agra, it is one rich in irony. The franchise model now being championed by reform-minded policymakers in India won acceptance because of Torrent’s success in dramatically cutting distribution losses in Bhiwandi, a grimy textile town of less than a million people.

When Torrent took over in 2007, Bhiwandi paid for barely 40 per cent of the electricity it consumed. Three-quarters of consumers were not accurately metered and transformers failed frequently.

This changed dramatically in just four years: 99 per cent were metered and losses shrank to less than 20 per cent. Torrent’s success lay in extensive security of the network and vigilance that curtailed theft. Investment in infrastructure ensured quality of supply.

Bhiwandi does not provide a picturesque backdrop for one of India’s biggest privatisation success stories. Its rutted roads and rotting buildings blackened by pollution belie the fact that it is one of the country’s main textile hubs. When Torrent arrived, it faced a wall of opposition from factory owners, politicians and residents who objected to new meters being installed and having to pay bills in full for the first time.

In a foretaste of what was to come in Agra, mobs attacked the company’s offices and staff were assaulted.But that is where the similarity with Agra ended, because unlike Uttar Pradesh, the Government of Maharashtra is much tougher on electricity theft.
In Bhiwandi, powerloom operators now enjoy 20 hours of supply compared with 12 hours when Torrent took over in 2007.