R Srinivasan

Sunny days ahead?

Updated on: Apr 16, 2014
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To get there, the power sector should be freed from power politics

There is another battle for power going on right now — for the electrical, not the political kind. But politics is mixed up in it

Earlier this week, the Confederation of Indian Industry (CII) did something surprising. It released a statement deploring the decision of two State Governments to ban the sale of electricity through the ‘Open Access’ system, which allows consumers to purchase power from the cheapest source, and not necessarily from their home grid, and producers to sell to the highest bidder, through power trading exchanges.

Hundreds of industries will be hit by the move, CII complained, adding an emotional para or two about how such moves went against the ‘spirit’ of the new Electricity Act. “The States need to promote the spirit of competition and choice to customers.

Open access is at the centre of the new Electricity Act 2003,” said Anil Sardana, Chairman, CII National Committee on Power and Managing Director of Tata Power, while expressing his views on the matter.

Surprise, surprise

All of which should hardly be surprising, considering that CII is an industry lobby body, whose stated purpose is to look out for the interests of its members and go to bat for them whenever a crisis threatens. So, why should any eyebrows be raised when it does what it is supposed to do?

The surprising bit was not that the CII issued such a statement, but the fact that one of the “two State Governments” concerned was Gujarat. Yes, Gujarat of the ‘ideal development model’, and home of Narendra Modi, the man whom most of the media and several opinion polls have already declared to be the nation’s next Prime Minister.

Now, criticising the move of a State Government – and by inference, the political dispensation behind that government (in this case, the man whom the world sees as being in total control of it) – at this point in time, with polling only half way through and the outcome in many crucial States yet to be decided, is a very surprising thing to do. When that criticism involves Modi, who has more than once demonstrated in the past that he takes negative criticism very negatively, it is actually downright dangerous. And when this is done by industry, which has seldom, if ever, shown the backbone for a showdown with the Government, it is simply astonishing.

The other side

Or, it could be a sign of the level of desperation among power consumers. India’s power scenario at the moment presents a deceptive picture of plenty. Spot power prices in the power exchanges are around Rs 4-4.50 per kW/hour, and near-term prices even cheaper.

That should suggest that supply is exceeding demand, which is correct. But demand is being distorted by two factors: the severe industrial production slowdown, which has actually reduced demand, and the fact that existing demand is not being allowed to access the open market by State governments.

Karnataka and Gujarat have restricted power trading to within their boundaries. On paper, Maharashtra, India’s most industrialised State, doesn’t, but the fact is that the Maharashtra Electricity Regulation Commission has rejected virtually every application for open access — 29 this year alone. Everywhere you look, the picture is the same.

The intention behind the series of reforms in the power sector over the past decade, from opening up generation and distribution to the private sector to breaking up state-run monopolies and from freeing up power prices (albeit under regulatory oversight) to allowing both producers and consumers ‘open access’ to a modern power market was noble: allow market efficiencies to operate, thereby offering consumers better quality of service at better prices.

The reality is quite the opposite. More than a decade after the reforms, all players find themselves in some kind of a mess or another, largely of their own making.

Comprehensive mess

Efficiencies have not improved in the nominally privatised State-run generation and distribution companies. Private players who invested are also stuck – some for want of fuel, others for lack of power purchase agreements, yet others because the grid is not there. The national grid exists, but is not good enough to efficiently transfer power from surplus to deficit areas. As for consumers, whether individuals or industries, their complaint is the same – their bills are going up, availability and quality of power aren’t.

Meanwhile, the system has been gamed so often by all the players that sometimes, it blows back on them. Like the imbroglio around open access, which some of the players had opposed in some markets, so they wouldn’t lose lucrative market share to rivals!

And it would be wrong to assume that the private sector alone is to blame for the mess. A lot of this is also due to the bureaucrats in the State-owned entities in the fray, as well as the bureaucrats in the ministries at the State and Central level, as well as the retired bureaucrats largely staffing the regulatory bodies, who have often done what they are uniquely good at — ‘interpreting’ the rules, often ostensibly on behalf of the poor “consumer”, to ensure the existing hierarchy is not dismantled.

Meanwhile, we continue to slip behind. New capacity addition based on fossil fuels has been virtually at a standstill after the coal scam broke, but everybody else is carrying on as if the situation will magically sort itself out. We don’t even have a coherent power policy. Instead, we have a Power Ministry and another one for non-conventional sources, working at cross purposes.

So we have situations like that which exists in power-starved Tamil Nadu. It is home to 40 per cent of India’s installed wind power capacity — but the State board refuses to buy power from wind generators (except in times of acute shortfall) because they already have long-term agreements with thermal producers for power at virtually double the cost of wind power!

Behind all this is the unseen hand of the politicians, who have their own interests at every stage of the game — from allocation and extraction of raw material like coal, to power generation, distribution and even pricing. It is high time we freed the power sector from power politics.

Published on March 12, 2018

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