Haryana

Do Indian farmers really want free power? The question may sound like a no-brainer at first - when, after all, was the last time that you heard of anyone refusing anything free? The truth, however, is that Indias farmers may be tiring of receiving cheap, but unreliable, power supply. Give them the choice of paying more, but receiving adequate power at appropriate times, and the farmer may well be willing to fork out the extra money as the price for hiking agricultural productivity.

Or so goes a new argument which could set the tone for future, much-needed, power reforms in India. The World Bank, convinced that Indias farmers are thirsting for better quality power, is pushing hard to remove power subsidies as it undertakes projects to reform the ailing state electricity boards (SEBs). Farmers prefer high quality power to subsidies. If they get better quality power, then they are willing to pay higher tariffs, said the Banks senior energy advisor at the New Delhi office, Djamal Mostefai, citing examples of farmers irked at receiving subsidised power only during inconvenient hours such as in the middle of the night.

A handful of state governments, anxious to improve the situation in their power-starved regions, are now on the verge of putting the Banks premise to test by replacing cheap power with better power.

Haryana is poised to be the first test case. Last week, the Haryana government received the World Banks nod for a $ 600 million loan to overhaul the states collapsing power sector. Under the multilateral agencys new adaptable loan instrument, the state government will receive the funds over an eight to ten years period, with each installment being released automatically as mutually agreed benchmarks are met. Haryana will receive $ 60 million as the first installment. Bank officials expect the state to be ready to receive another $ 150 million - $ 200 million later this year.

Although the states total cost for overhauling its power sector is expected to reach $ 1.8 billion over a ten year period, money is unlikely to be a problem. Apart from the World Bank, an impressive array of international donors are readying to back the plan. The international community recognises that the reforms are courageous. If it moves on the reform agenda as expected, there will be no lack of resources. Itll be a question of implementing capability rather than financial constraints, said Mostefai, who is also the task manager for the Banks Haryana Power Restructuring Project.

The international response underscores the importance attached to the Haryana project as a model for future restructuring programmes. Even though Haryana is not the first Indian state to receive World Bank assistance in overhauling its power sector (Orissa, with a $ 350 million Bank loan, began its programme in 1996), it is the first major agricultural state to undertake the task. Crucially, Haryana supplies about 45 per cent of its power to the agricultural sector (compared to Orissas 7 per cent). The large agricultural demand for power in Haryana puts it in a perfect position to gauge the farmers response to the reforms. Even though Haryana is one of the few Indian states where farmers pay more than 50 paise per kwh, supply to the agricultural consumer is still highly subsidised. If the restructuring goes through as planned, the subsidies will disappear.

In return, state government officials and the World Bank hope to satisfy the farmerss need for adequate and more regular power. The Haryana State Electricity Board (HSEB), like its counterparts in other states, is unable to cope with the demand for power. Bank officials estimate that there is a shortfall of about 20 per cent in satisfying the demand for power in India. In Haryana, the demand-supply gap for power is as high as 25 per cent.

Under the restructuring programme, Haryana expects to improve its power supply by privatising the sector. The state has undertaken to set up an independent regulatory authority, and to unbundle the HSEB into separate generation, distribution and transmission companies. Subsidies will be eliminated, and tariffs raised to put the newly incorporated companies on a sound financial footing.

The reforms are aimed at attacking the roots of HSEBs dismal situation. Haryana is currently plagued with poorly maintained power stations and low quality coal. Lacking the resources to upgrade its facilities or improve its fuel supply, the HSEB has an unenviable low plant load factor of 45 per cent. Its system losses are recorded at 32 per cent; the World Bank believes that the actual losses may be closer to 40 per cent. Bad though the HSEBs situation is, it is hardly unique. SEBs across the country are suffering from identical problems of politicised, non-remunerative tariffs, failing facilities and large leakages from the system. The blood of the SEBs is leaking because of huge transmission losses, Mostefai said dramatically.

In Haryanas case, the collapsing power system galvanised the state government into action. The HSEB was clearly in no position to meet the states increasing hunger for power. By 1997, the power subsidy had ballooned to as much 2.4 per cent of the states domestic product over the past decade. The amount spent on the subsidy was equivalent to more than two-third the states fiscal deficit.

But the existing power framework had its supporters. The powerful agricultural lobby was not happy about losing its subsidies. HSEB employees, dismayed by the prospect of losing their jobs, were unenthusiastic about privatisation. So were others, who benefited from the theft from the system.

Without committing to sweeping reforms, however, Haryana would have been unable to tap World Bank financing. But after fostering debate over the reforms, it succeeded in passing the Haryana Electricity Reform Bill last July. The real challenge now, of course, lies in improving both the availability and quality of power. Without visible improvement, the impetus for the reform could soon collapse under political opposition. Admitted Mostefai, We cannot address the issue of tariff reform until there is a supply of better quality power.

If all goes according to plan, Haryana will have eliminated all subsidies in the power sector in four years, freeing a chunk of the states resources for other needs. Bank officials, intent upon speeding the project, say their institutions funds will become available at the same pace as Haryanas implementation of the reforms. Such strong support is based on the belief that Haryana could serve as a trailblazer in the struggle to resolve the highly politicised question of power subsidies for farmers. States such as Andhra Pradesh, Karnataka and Rajasthan are readying their own plans to seek Bank funding to overhaul their faltering SEBs, but Haryana is clearly in the focus as the pioneer.

Haryana is the real, the most difficult, case. It presents the best way to solve the problem of power in India, Mostefai said, adding firmly, Failure is not an option.

There is much riding upon the future of the Haryana project. At the World Bank, energy experts believe Indias power crisis has reached catastrophic levels. An agricultural state that has done away with power subsidies for farmers could serve as a powerful ally in the battle to restructure other SEBs.

Meanwhile, the humble Haryana farmer holds the key.