Today a private power producer's major responsibility is to run his plant at an agreed plant load factor. Beyond this there is little that is in his hands and so at every turn of the road, for every new difficulty that crops up, the producer argues that setting it right will involve so much of additional investment which will result in an additional pass through' cost, that is, it will be loaded on to the tariff which has been agreed upon between the producer and the state electricity board. This results from the received doctrine of two-part tariff' which guarantees a particular price for an assured minimum level of output and then an incentive-based scale for fixing the tariff for any additional power generated.
The agreement or memorandum of understanding (MoU) for these power projects have all been individually negotiated between the various state governments and power producers. To meet a particular deadline after which all power projects would have to be awarded through competitive bidding, state governments literally burned the midnight oil to ink the MoUs. Thereafter, the producers and the respective state governments have all been engaged in elaborate haggling with the central government and its public sector agencies like the railways and oil companies to get allocations of fuel or fuel linkages and the promise by the railways to carry the fuel. There is much scope for corruption and a bit of a free ride for the producers in this system.
The central government, for its part, continues performing its old role of either a rationing authority or passing on subsidies for the use of certain fuels and their transportation, which, if paid for at market prices, would lead to higher costs which would, of course, be passed through. At the apex of this convoluted process sits the Central Electricity Authority (CEA), which not only refused to die (power minister Y K Alagh, being a planning enthusiast, cannot afford to see this great storehouse of expertise' disbanded) but continues to examine the techno-economic' feasibility of projects and sanction them. Meanwhile, newspapers are full of complaints over fuel linkages, commitment charges demanded by the oil companies and the reluctance of various authorities to promise either the fuel or its delivery.
It should be axiomatic that as private money is being sought for power generation, proper market conditions have to be set up for the funds to come in. A half-way house will merely create either a Pakistan-type situation in which the guaranteed power purchase agreements have been liberally signed and huge investment attracted, with the state unable to pay the hard currency power bills that are beginning to come in or the Indian-type in which hardly any project is finalised.
The government's role should really be limited to creating a proper independent regulator and providing environmental clearance. Thereafter, every power project should be negotiated and sealed by the buyer (state electricity board) and the seller (independent power producer). Nobody else should come into the picture. The tariff that the power company quotes would take into account the cost of not just setting up the power plant but also of buying the fuel, domestically or from abroad, and transporting it.
Logically, all fuels should be put on OGL and private mining of coal facilitated. That great storehouse of power expertise, the CEA, should be turned into a consultancy firm which could canvas SEBs for assignments to help them evaluate bids. And the Planning Commission should bring the rail, road, port and oil interests together to help them plan their future better.
The flaw with this scenario is that the SEBs are ill-equipped to perform the role assigned them by the marketplace. No matter how hard you try to get a few projects quickly off the ground, the inability of the SEBs to do their jobs will pull you down. As SEB reform will take at least another five years, there is a short cut solution. The government can float a public sector power trading company to play a key role. It will negotiate power purchase agreements with the power producers and sell power to the SEBs. The SEBs will perform the role of distribution companies and the Power Grid Corporation, the major transmission company. The power trader can then absorb all the great experts in the CEA and power production can be delicensed. The power trader, being central government-owned, will sign power purchase agreements which will virtually carry a central government guarantee.
How can we guarantee that this power trader will not become a white elephant and burden the central government with huge liabilities? It can be floated and structured with the aid of multilateral agencies like the Asian Development Bank and International Finance Corporation which will hold, say, 10 per cent shares each and keep a watchful eye. It can have a pre-declared programme of issuing shares to the public and can grow an efficient commercial culture despite being majority public sector-owned, say, by SBI and UTI, in the same way as HDFC has. And this power trader can then tell the SEBs to either initiate reforms or go suck eggs. This is not a novel idea. In the UK, power traders are a fact of life. Any consultant in the power sector will be able to develop this idea with relish. What is needed is for the power ministry to be capable of thinking along such lines.
