Price of populism

Price of populism

The energy sector

While the states have failed to act responsibly in the power sector, the Centre’s hands-off policy has really been ruinous.

We have a very large and complex Central government. Among its earliest agencies after independence was the Planning Commission. Its authority has waxed and waned over the years.

Under Nehru it was a powerful body involved in all aspects of economic decision making. Indira Gandhi and Morarji Desai emasculated it and even gave the country Plan holidays. The present Commission is more powerful because of the special relationship between the prime minister and the deputy chairman. Many ideas have been quickly accepted from this power centre like viability gap funding for infrastructure, the national urban renewal mission, special economic zones, or the continuing emphasis on growth despite double digit inflation, while other ideas got great visibility, like the sovereign wealth fund using our volatile foreign exchange reserves.

As energy member of the Planning Commission, the present deputy chairman studied and recommended actions to resolve the huge outstanding payments of state electricity boards to central public undertakings (then around Rs 40,000 crore). He recommended their securitisation with the condition that the SEBs would clean their finances from then on.

Securitisation took place, debts were hidden, and the SEBs in most cases did nothing to improve their finances. The Planning Commission after the securitisation, had little follow up actions.

The state governments played populist games with free power to farmers. They encouraged poor and inefficient management by bureaucrats on rotational postings running electricity boards. They appointed retired administrators as chairmen of the state electricity regulatory commissions. These state regulators should have determined tariffs that were fair to consumers and kept the electricity enterprises viable. Instead they aimed to keep electricity tariffs from rising and rejected legitimate costs or set them aside as ‘regulatory assets,’ to keep tariffs from being raised. The political leadership wanted it this way and the regulators obliged them. The Planning Commission had no comment.

The last Finance Commission pointed to the imperative of state governments improving viability of SEBs. It is only now when electricity distribution enterprises, over 90 per cent owned by state governments, have accumulated huge losses, are unable to invest in new capacities and even maintenance, that the Planning Commission and its present energy member have woken up. When they could have pushed and prodded state governments over the last many years the Planning Commission did not get the states to improve.

The ministry of power which is the implementing ministry also has been asleep on its watch. Its civil servants and minister have made a few public noises but not shown energy of their own to get the states to change. The Centre has been ‘hands-off’ as far as the power sector in the states was concerned.

Government servants

The SEB managements continued to be without commitment to their undertakings’ financial viability. They are government servants, not managers running enterprises with huge investments. They expect their state governments to bail out their deteriorating finances each year.

The Shunglu Committee recently estimated the accumulated losses of SEBs at Rs 2.3 trillion and expanding at the rate of Rs 1 trillion a year. The losses are caused by subsidised or free supplies, tariffs not matching costs, transmission and distribution losses, poor technical management and billing and collection. As one example, the Karnataka government asked its Raichur thermal plant to postpone annual maintenance by almost two years because of local elections.

They did not want power shortages to get them hostile votes. In subsequent months the Raichur plant ran into serious trouble and power generation was very short. The munificent state government bought power at high prices instead! Before elections last year the Tamil Nadu government bought power in the market, pushing up market prices to Rs 10 or so per unit when in the rest of India it was around Rs 5.

It is irresponsible of politicians and bureaucrats to damage the financial base and equipment without thought to the future generation and viability of the power system. This lack of responsible governance applies to the entire energy sector in the states and a distancing by the Centre has taken the power sector in India beyond financial collapse. Private parties with gas fields are said to have deprived government of vast royalties by padding capital costs and under producing gas while awaiting better tariffs. Coal India has deprived power stations of coal at critical times, leading to shortages of power.

India needs increasing quantities of cheap power. The major costs of power are on equipment and fuel. China installs one lakh mw of power capacity in a year; India is lucky to install 20,000 mw in five years. Chinese power equipment is cheaper, less carbon emitting in burning coal, faster in delivery and at lower prices than anyone else. The Central Electricity Authority certified its high quality. China also gives good credit terms. Our Planning Commission and power ministry, with skewed priorities, want a 14 per cent duty on Chinese equipment to enable new and unproven Indian equipment producers to ‘compete’, making for more expensive power and possible delays in production.

We are a proud democracy, but immensely corrupt, a rapidly growing unequal society and an intimate nexus between politicians and bureaucrats. One helps the other to meet personal and not national goals. We must at least prevent ministries and the Planning commission from acting without  accountability. They must not get away with poor foresight, no follow up, costly delays and inefficiencies. We must have responsible governance.

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