Fat's in the fire

BS OPINION

Politicians have used every possible excuse for not attending to the ills of the electricity sector. At Rs 21,000 crore today, the losses are up five-fold since 1991-92, and the chickens look like they're coming home to roost pretty fast.

In Maharashtra, for instance, Reliance Energy has applied for permission to distribute power in some of the most lucrative areas, both in terms of the number of customers as well as revenue potential, of the Maharashtra State Electricity Board (MSEB).

Under the new law, unless it is able to show good reason, the Maharashtra regulator, MERC, has to grant the licence since Reliance is both a credible player and has the requisite financial muscle to set up distribution networks in these areas.

Once that happens, it's easy to see what will happen to MSEB, as its best customers begin to do a vanishing act. And, it's not too difficult to see what will happen to other SEBs once private distributors are allowed access to their areas of operation as well and begin cherry-picking the best customers.

The question then is: how are MSEB's interests to be protected? After all, if MSEB uses these customers to subsidise others (and it will surely make this case, even exaggerate it), how is it to run operations in other parts of the state?

The problem will get more acute once open access is introduced and distributors are allowed to use the distribution lines of the incumbents in return for a user fee.

Clearly, regulators need to begin to work on issues of compensation for cross-subsidies and the huge deficits in the sector "" the nearest parallel, of course, being the 'access deficit charge' concept that the telecom regulator is struggling with, for compensating Bharat Sanchar Nigam Limited (BSNL) for putting up unremunerative phones in rural areas.

Theoretically, the 'wheeling charge' is the equivalent of the 'access deficit charge', but a 'wheeling charge' is more in the nature of a payment for using facilities set up by someone else, rather than a payment made in order to cross-subsidise losses in another sector "" and that is what is needed now.

While dismantling of the SEBs through privatisation is often suggested, it is at best a partial solution to the problem, even if you can handle the lakhs employed in these SEBs. The reason is simple: once you privatise, there's no compelling reason for the private firm to supply electricity to all customers.

Theoretically, you can get over this by specifying obligations to supply, but we've seen how similar obligations were openly flouted in the telecom sector. Besides, in the case of Delhi, governments have to woo private investors to take over erstwhile SEBs by offering huge transitional subsidies.

Again, while these are supposed to get over after a certain period (once the so-called 'efficiency gains' of privatisation begin to kick in), subsidies in India, as on fertiliser, manage to continue for one reason or the other, usually through citing some illusory 'consumer interests'.

The issues plaguing the power sector have always been critical; resolving them has become both crucial and urgent.