The “Dark Age” is looming
by K P Prabhakaran Nair on 18 Oct 2012 11 Comments

Recently, President Barack Obama said that India needs a second “wave” of reforms. It will, of course, be driven by the US Agency for International Development (USAID) and MNCs like Wal-Mart. Like it was in the late nineties when these entities led by the shameless Enron, the US energy giant which fleeced India and had to finally flee our shores (the Chairman absconding and allowed to go scot-free, like many others who have fleeced this country before, and continue to, and were allowed to leave – thanks to the mafia politics of Delhi). Enron was deeply involved in the “first” wave of reforms, in the power sector.


Indians are still paying the price for the “first wave”, at the core of which is the power sector. And today, India is “powerless”, with the coming of the “dark ages”. The Indian power sector is in deep distress and angry citizens are taking to the streets to protest against the abysmal power situation in the country. Last week, we saw on the TV screens the energetic and unstoppable Kejriwal of India Against Corruption restoring power to a poor Delhi citizen whose power line was cut for non payment of power bills (less than Rs 5000), while power is being squandered by politicians all over the country, costing the exchequer crores of rupees annually.  


Power shortages through June to July averaged over 36000 mega watts (MW), roughly 18 per cent of India’s installed generating capacity of 2,02,980 MW. Outages (load shedding) routinely cause 12-16 hour blackouts in metros. Losses in distribution (many times clear theft by unscrupulous industry conniving with authorities through bribes and kickbacks) average over 30 per cent across the country. Power utilities are running an annual loss of about Rs 70,000 crore. Over 25 per cent of India’s population still has no access to power after 65 years of “Independence,” while the rich and super rich of the country and corrupt politicians live in air conditioned luxury. What a shame!!!


To find out why all these happen, we need to go back two decades. In the early 1990s, when India’s power sector reforms were being deliberated at the World Bank, in Washington, there were two schools of thought. The issue was whether the reforms should be “structural” or “end-use efficiency” oriented. Those who knew the Indian realities suggested the “end-use efficieny” route, supported by structural reforms. But the World Bank “consultants” and “reform specialists” (like many we have today in New Delhi on the insistence of USA), like the Chief Economic Advisor who descended from the USA on a very fat salary to be borne by the Indian exchequer, (like his predecessor who has since left India to join the World  Bank as Chief Economist after “advising” the Government of India for three years and nothing worthwhile happening  in the country except the country footing his huge salary bill), who has advised that to overcome India’s food insecurity we must start eating more eggs and drink more milk – while millions starve on an empty stomach each day!


These are the “consultants” who have no idea of what India’s actual economic and social situation is like. These consultants and reform specialists pitched for the “structural” approach, ignoring the “end-use efficiency” approach.


The report submitted by US consultants in mid-1996 to USAID suggested a structural approach of creating “independent organizations” with “unbundled functions” – generation, transmission and distribution, replacing the State Electricity Boards (SEBs), like the Kerala State Electricity Board (KSEB). These organizations would then be turned into “privately owned firms” which would provide much of the growth of the power sector since the “quest for profit would motivate their activities, and they would have a greater commercial orientation than most government-owned organizations”. End-use efficiency was sought to be achieved by a “trickle down” process (like poverty elimination, as envisaged by the World Bank, which has failed all over the developing world wherever the concept was tried,  especially in India) passing through layers of restructuring, unbundling, privatization and tariff rationalization on a “cost-plus basis”.


The above report spawned the “management model” approach, which the Union Ministry of Power got endorsed from the Chief Ministers’ conference in 1996. These structural modules became the mantra and the yardstick for appraising the utility of SEB reforms. The extent of financial and technical assistance by the World Bank, Asian development Bank and other agencies also depended upon the rigidity with which these reform modules were adopted.


The sum and substance of the process was that the inefficiencies of SEBs would be removed through physical restructuring and these entities made viable and profitable by a “freewheeling” market mechanism. The objective was to facilitate the takeover of India’s power sector by the US and other global MNCs involved in power sector. For this purpose, an embargo was placed on the National Thermal Power Corporation (NTPC) and the SEBs not to create additional generation capacity, while sovereign guarantees as well as a special escrow mechanism were provided to pay for high-cost power from multi-national generating plants. Hoping  to pluck low-hanging fruit, the independent power producers (IPPS, like the proposed Kannur Power Project, in late 1990s, mooted by the now ailing Sri K.P.P. Nambiar, which finally could not take off due to political arm twisting), mostly American, came in large numbers to the country.


Due to the near bankruptcy of the SEBs, which were to buy the high cost power produced by such entities, this model did not work. Instead, scandals like the Enron happened. The World Bank panicked and withdrew from India’s power sector in 2002, after spending billions on consulting services, kickbacks, and project formulations. IPPSs also rushed out.


Despite the passage of the Electricity Act in 2003, largely to facilitate private investment and promote public-private participation, the power sector continued its descent into chaos. In 2005, after a reality check, the Planning Commission headed by Montek Singh Ahluwalia admitted that though there had been a number of experiments in electricity reforms, including the one fashioned by himself in mid-1990s (perhaps inspired by the World Bank, where he was a previous  high salaried employee), none of them had established a “viable model”.


“Open access” has been Ahluwalia’s favourite mantra for all these evils; he himself describes it as “allowing generating companies to sell directly to distribution companies and bulk consumers, thus creating a competitive market where producers would take investment decisions based on demand and without relying on power utilities or State Governments. This would bring electricity at par with other goods and services, where competition and market forces determine efficiency levels, investments and pricing”. He suggested that the ensuing “open access” and copious supply to miniscule bulk consumers of 1 MW and above would empower the people and transform India’s power sector – a farfetched notion, indeed.


Treating electricity at par with other market goods and services reflects a true lack of understanding of the basic economics of the market, of electricity as a commodity and the profile of its consumers. India’s power consumers range from poor daily wage labourers to those living in ultra-modern luxury. Unlike telecommunication and civil aviation, where consumers are all high income groups of Indians, electricity is a product which even very poor Indians use for very basic necessities such as house lighting, as well as for earning their livelihoods. Besides, given the chaotic distribution infrastructure, and poor system reliability, it is highly doubtful whether the “open access’ system would remain truly open to all. 


Just by augmenting generation, enhancing tariff and accelerating open access, it would be well-nigh impossible to make power utilities function as professional entities, performing essential tasks of delivering adequate, reliable, affordable and good quality power to the consumer, whether a super-rich corporate leader or a daily wage labourer. This should be the central focus of any power supply system, not merely to make huge profits, while ignoring the right to good utility delivery for the money paid by the consumer, including poor ones.     


Any increase in generation capacity is more than offset by inefficiencies and wastage at every stage – production, transmission, distribution, and delivery. Without fixing the inefficiencies and wastages, increasing generation capacity and production alone is like filling a bucket full of holes at the bottom. The first and foremost task should be to plug the holes, and some of the examples given at the beginning of this article are telling instances of these leakages.


For this, the basic philosophy of power utility management should undergo a paradigm shift and move away from the generation-led augmentation mindset to the distribution/delivery-led optimization alternative. Wire (distribution) and non-wire (delivery) services should be blended and managed in such a manner so as to remove the severe constraints that plague the system; ill-trained workforce, poor reliability, high-line losses, low voltage profiles, overloading of transformers, poor maintenance, absence of conservation measures, power theft, haphazard layouts, whimsical load connection (many get it through bribe), inadequate clearance, etc., are some of the very serious constraints in providing quality delivery of power to the consumer. 


There should also be optimum revenue integrity in metering, billing and collection. While substantially improving power availability and reliability, this would also restore the financial health of the utilities. This can be achieved by creating a comprehensive consumption profile in each utility, designing a state-of-the-art distribution system and streamlining the delivery mechanism and feeder system to meet the specific need of each consumer category.


Legal and regulatory compliance with regard to cost-to-serve and T&D (Transmission and Delivery) losses is another imperative. Dovetailing this with effective demand-side management and aggressive promotion of distributed-decentralised generation utilising our vast renewable energy sources (like solar energy coming from brilliant sunshine), could transform India from a “powerless” to a “powerful” energy-rich nation.


This is not even being thought of and debated objectively, either in New Delhi or State capitals, leave alone being attempted. Now in 2012, as the “Dark Age” looms, the Prime Minister has appointed another commission of secretaries to sort out five key problems – domestic coal supply agreements, gas allocations, imported coal issues, forest clearances for coal blocks and coal production from captive coal blocks.


The Comptroller and Auditor General Report (CAG Report) on the biggest “coal scam” will not take India any forward. The Planning Commission under Ahluwalia has chipped in with a “diktat” to all States to continuously hike electricity tariff to eliminate subsidy (under the dictation of the US/World Bank). As a consequence, consumers are crumbling under. These initiatives are meant to benefit the IPPS and not to revive the ailing Indian power sector.


The Government’s dealing with the power sector is more like five blind men trying to figure out different parts of an elephant. The “diagnosis” is dependent on the individual sector’s interests and not holistic. A solution depends on who is most efficient in lobbying in New Delhi or State capitals. This prevents evolution of a holistic approach to tackle the grim power situation in the country. May be, the powers-that-be (the political power brokers) are waiting for another Enron to reflect the “third wave” of reforms!


The author is former Professor, National Science Foundation, The Royal Society, Belgium and Senior Fellow, Alexander von Humboldt Foundation, The Federal Republic of Germany and Chairman, Independent Expert Committee on Bt brinjal

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