Karnataka power sector reforms remain a non-starter

Despite tremendous progress towards fiscal consolidation, power subsidy continues to remain the black hole of Karnataka's finances. The 2005-06 budget provides for a massive 25 per cent jump in power subsidy over the previous year to touch Rs 1,750 crore.

Deputy chief minister and finance minister Siddaramaiah has sought to address the problem by announcing in his budget that he "propose 100 per cent metering in all sections including the subsidised sector." But significantly, he has declined to lay down a time table for this.

He has sought to assure farmers that the purpose of the move was to keep a "proper account of power consumption" and they were free to pay the "flat rate... or the metered consumption, whichever is less." But no one in political circles is willing to guess how long it will take to introduce 100 per cent metering.

This is firmly linked to another proposal of the finance minister, introduction of a "purchase-provider" model under which the power distributors will have to "submit a bill to the government on the basis of metering done at the consumption and distribution points. In addition, in order to reduce power thefts and losses, energy audit will be rigorously conducted."

But going by past experience, this may be wishful thinking. The previous government had sought to put a cap on the power subsidy by first capping the overall supply or consumption and then asking the distribution companies to bill what it could and distribute the rest to farmers.

It also set out efficiency parameters which the distribution companies would have to meet to claim the subsidy.

The government set up a committee under the finance commissioner to oversee this entire arrangement and determine the power subsidy. But critically, the energy department never got round to signing the MoU with the distribution companies to get the system going.

The idea of purchase-provider mentioned in the latest budget is also not new. It and the earlier system both recognise that when there is a massive subsidy the government really becomes the purchaser and the distribution company the provider which is paid off according to how well it has performed.

The whole idea is to improve billing and collection efficiency and give the distribution companies an incentive to perform, which is non-existent now. A third of what the transmission agency, KPTCL, passes on is assumed as T&D (transmission and distribution) losses.

Then the distribution companies bill 51 per cent of what they claim to get. Thus only 34 per cent of power purchased by the state is billed.

It is this scenario that successive governments have been unable or unwilling to change, despite noble intentions uttered in budget speeches.

Arrack reforms in high spirits

Compared to his failure in properly targeting power subsidy, Siddaramaiah has been equally successful in bringing about reform in the liquor or arrack trade.

He introduced a major reform by bringing down state excise duty on arrack from 20 per cent to 2 per cent last year but still has managed to earn Rs 400 crore more of revenue, a good Rs 100 crore more than originally estimated.

Thus emboldened, he has taken his reforms one step further by proposing to raise the maximum price of arrack to Rs 115 per bulk litre from Rs 95.

This, he expects, will not lower revenue receipts but actually raise it as a more realistic margin for retailers will allow them to sell more of the stuff over the counter.