A K Bhattacharya: The missing emphasis

NEW DELHI DIARY

Somewhere along the way, power sector reforms in India seem to have lost direction. This may sound a little odd at a time when power reforms in general have made a lot of difference to the efficiency of the distribution network, the regulatory system and to the economic health of power generators and distributors. The truth is that in spite of all these changes, the power sector is in a bit of a mess. And there are clear signs that this mess is going to get messier in the years to come.

But before dwelling on that, it would be useful to recount the positive changes that we have seen in the power sector in the last few years. Today, all the states in the country have signed memoranda of understanding with the Centre for bringing about power distribution reforms. As many as 24 states have set up state electricity regulatory commissions and 19 of them have already issued tariff orders. Barring a few state electricity boards, all of them are cash surplus, after their accumulated dues were securitised in 2002-03. National Thermal Power Corporation (NTPC), the country's largest power generator, has reported no payment overdues from the state electricity boards for the last three years.

Thirteen states have corporatised their power utilities or unbundled the various wings of generation, transmission and distribution. Orissa and Delhi have privatised power distribution, although whether they achieved the desired results is still being debated. In 18 states, the 11 kv feeder network (a critical element in ensuring smooth power distribution to consumers) has been completely metered and five states have achieved 90 per cent metering. Four states have recorded 100 per cent consumer metering and nine states have achieved 90 per cent consumer metering. Transmission and distribution losses have come down below 15 per cent in 158 towns and below 20 per cent in 38 towns.

The good news, however, ends here. The problem starts with the overall availability of power that has either declined or remained the same as five years ago. The number of pockets suffering from shortages has increased (north Indian states are an example these days) and seasonal supply shortfalls have worsened. The country's total electricity shortage at the start of the Tenth Plan was 7.5 per cent. Last year, it was over 7.7 per cent. There has been some improvement in the peak shortage scenario, where the deficit has marginally declined from 11.8 per cent to 10.5 per cent in this period. But this is no comfort for a government that is committed to power reforms and meeting the country's entire power demand by 2012.

The reason for this sorry state is that the government's programme for power capacity addition has gone completely haywire. Take the Tenth Plan as an example. The Plan target was to add 41,110 Mw in five years ending March 2007. The Tenth Plan mid-term appraisal showed that a capacity addition of only 36,956 Mw was feasible, down by 10 per cent. The government has now further scaled down the target to 34,000 Mw.

But a look at the ground reality reveals that achieving even this target will be difficult. Till January this year, the total new capacity commissioned in the Tenth Plan was 13,800 Mw. The government now hopes that in the remaining 14 months, it would commission 20,250 Mw more capacity! This is a near impossibility. In 2004-05 also, the government started the year with the hope that over 5,200 Mw of capacity would be added, but at the end of the year could actually add only 3,948 Mw. In 2005-06 also, the same story has been repeated.

It is not just the central or state sector power utilities that failed to meet the targets of adding capacity in the last few years; the private sector's plans have also gone awry. Against the 172 Mw of capacity to be added in 2004-05, it ended up creating only 70 Mw. Similarly in 2005-06, it added only 660 Mw till January 2006 against the annual target of 1,382 Mw. So, let us not just blame the public sector units for failing to meet the capacity addition targets. The problem is more deep-rooted to have affected even the project execution capabilities of private sector players in power generation.

The enormity of the problem arising out of the failure to meet capacity addition targets year after year may not have yet dawned on the policy makers in Shram Shakti Bhavan in New Delhi. The power ministry is still busy focusing on giving approvals to mega power projects and ultra mega power projects with a capacity of 4,000 Mw each. The problem is not in planning the projects. The ministry should now direct its energies to resolving all the issues that are coming in the way of timely execution of power projects in the country. Distribution reforms or regulatory reforms alone will not be able to solve the basic problem of meeting the rapidly rising demand for power.

The irony of all this is that at the start of power sector reforms in the 1990s, the Narasimha Rao government had focused primarily on the need for increasing power generation. In the process, it had ignored the much-needed reforms in the transmission and distribution areas. Stung by the criticism that power reforms had begun from the wrong end, successive governments laid emphasis on reforming transmission, distribution and the regulatory framework and these yielded rich dividends for the power sector. But in the process, power capacity creation programmes suffered from inadequate attention.

It is now time to make a course correction. Failure to take remedial steps would mean an increase in power shortages, neutralising the gains of distribution reforms and even constraining economic growth as a consequence.