The Hindu Business Line : `Power subsidy regime needs modification'

A POLICY initiative to restructure the electricity subsidy regime in Kerala in such a way as to limit it to the poor and the middle class has been called for in order to ensure the financial viability of the State Electricity Board.

The subsidy structure for domestic consumers, as its stands today, is regressive in that it results in people consuming more power getting more subsidy per month, according to Mr V. Santhakumar of the Centre for Development Studies.

In a paper presented at a seminar here the other day, he says that this is because of the fact that everybody gets the first 60 units or so of power at very low rates, which makes the average charges paid by the rich and the poor not so different as it would appear in increasing block tariffs.

As it is, around Rs 120 crore is given to the upper 20 per cent of the households in the State for their annual electricity consumption. This situation in which one gets more subsidy as consumption increases will lead to enhanced subsidy burden on the board as the per capita consumption goes up.

If proper remedial measures are not taken to reduce the overall subsidy burden, without affecting the poor and middle classes, the board's financial position will get weakened in the near future, says Mr Santhakumar.

The current financial position of KSEB is "comfortable". The operational losses have come down from Rs 1,200 crore five years ago to around Rs 200 crore today and it is not difficult to wipe out the operating losses in the coming days.

Some of the developments at the national level have facilitated the improvement in the financial health of KSEB. For one, the reduction in the interest rates has enabled the board to reduce its debt burden.

Also, the price reforms at the national grid, especially ABT (availability based tariff), which provides incentives for withdrawing power from the grid when the demand is lower, have helped States such as Kerala that have significant hydro-power capacity.

Further, the functioning of the regulatory commission, though it has not made much headway in tariff reforms and sorting out issues related to open access, has put some pressure on the board to reduce costs. The public discussions at the time of tariff revisions and the evaluation of tariff proposals by the commission have made it possible to bring out cost calculations of the board into public scrutiny.

However, though the financial position of the board has improved, the situation can turn difficult at any time in the future, warns Mr Santhakumar.

Apart from the subsidy burden, the increase in demand will raise the average cost of supply because of the declining share of the hydro-power and the need to buy the costly thermal power. This will put further pressure on the board.

Though certain austerity measures have been implemented, no major organisational reform has taken place in KSEB. This will make the board vulnerable under any future changes in leadership, governments and policies. Election-driven populism can also toss the board back into a crisis situation.

However, it is found that the society is not willing to support drastic reforms such as privatisation. A survey has revealed that only 15 per cent (though it is slightly higher at 25 per cent in cities) of the households support the privatisation route. This means that KSEB may continue to be a bundled State-controlled department-like entity.

Under such a dispensation, the pressure on the board to improve efficiency and service delivery has to come through the political route and not through competition and privatisation.

On the policy front, the paper suggests that the board has to fine-tune its internal generation planning with national generation investments. This is because excessive capacity building within the State in the thermal area may be costlier than buying power from the national grid.

There is need for strengthening the regulatory commission and the appointments to it should be above political considerations. There should be penalties imposed on the board if it fails in terms of service delivery and for inordinate delay in responding to line faults.