Can there be a market of sellers without paying customers? For decades India’s power sector has been haunted by the “extend and pretend” model of incrementalism and repeated bailouts.
By Shankkar Aiyar |Published: 14th November 2021 07:10 AM |
Can there be a market of sellers without paying customers? For decades India’s political class persisted with the “extend and pretend” model of reforms in the power sector. The question is whether bankrupt SEBs can power the promise of 24x7 Electricity for economic growth on an unsustainable economic model?
In November 2000, three MPs asked the government about the mounting losses of state electricity boards. The then Minister of Power Jaywantiben Mehta informed the Lok Sabha that in 1999–2000 SEBs had recorded losses of over Rs 14,900 crore. She revealed that instead of earning a minimum rate of return of 3 per cent on their assets as required under Section 59 of the Electricity Supply Act, 1948, almost all SEBs are showing “negative returns”.
In the two decades since the picture has worsened. In March 2010 the losses of SEBs after receiving subsidies stood at Rs 45,382 crore. Accumulated losses stood at Rs 1.5 lakh crore. To fund these losses SEBs had to borrow. The outstanding loans stood at Rs 2.66 lakh crore. In November 2021 PFC’s report on state utilities reveals that as of March 2019–20 the losses of SEBs post receipt of subsidies was Rs 38,093 crore. Accumulated losses stood at Rs 5.07 lakh crore, outstanding debt of the state utilities touched Rs 5.14 lakh crore.
Every few years the Government of India is confronted by the bankruptcy of SEBs. Bailout packages followed as in 2000 and 2012, and in 2015 the Modi government came up with UDAY which was presented as an incentive package. In 2021 there is a new bailout with an allocation of Rs 3.03 lakh crore spread over five years.
Every bailout is a combination of the clichéd carrot and stick policy — states are goaded to implement a plethora, virtually a laundry list, of much-needed and pending reforms to make the sector viable in return for moolah, paid for of course by the hapless taxpayer. What is noteworthy is the consistency with which the central conditions persist in each bailout.
In 2001 chief ministers of all states agreed to 100 per cent metering of all consumers, elimination of power theft, upgradation of T&D systems and reduction in the gap between the cost of power supplied and revenue realised. In 2012 states were offered grants on reduction of theft/AT&C losses, reduction in the gap between cost and revenue realised and metering. The 2015 package required the willing states to achieve improved operational and financial efficiencies — aka (AT&C) losses, cost to revenue gap and institution of metering.
Most commitments have slid down a slippery political slope. Consider the quest to reduce AT&C losses — essentially the difference between the cost of supply and revenue collected. Globally transmission and distribution losses range between 2 and 8 per cent. In India AT&C losses are a euphemism for technical inefficiencies and brazen billed-and-unbilled theft. In January 2019 Power Minister R K Singh informed the Rajya Sabha that “reduction of 1 per cent in T&D losses results in a saving of Rs 4,146.60 crore”.
So what has been the progress? In 2001 AT&C losses were around 26.5 per cent. Two decades later they are still at 20.9 per cent. The crux of failure rests in what Milton Friedman observed in the mid-sixties. He said that the problem in India is that too many objectives were bunched in the design of policy. This would be true of the bailout packages which aimed to address issues ranging from installation of regulatory issues to induction of metering to improving revenue realisation.
The viability of the power sector demands closing the gap between the cost of power supplied and revenue realised. This is haunted by politicised sloth and lack of competition in the last mile of delivery and collection. This calls for opening up distribution for competition.
Given the resistance to privatisation this column had in 2015 suggested setting up of a national discom owned in part by say the NTPC, Power Grid and PFC to compete with state utilities to install efficiency. More immediately it is necessary to induct smart tech. It is true that vulnerable sections of consumers need subsidies or subvention in costs.
Equally it is critical to recognise that those who promise must pay and that there are technological solutions available — both for arriving at the cost of supply and payment of subsidies. Unlike the past there is now the Aadhaar-based direct benefit transfer system available. Add to this the e-Rupi, launched recently, which is designed for “person and purpose-specific” utility.
Take the issue of free power for farmers. Why not deploy the learnings from pilot projects, use smart metering to arrive at the average consumption of the farmer to bill the farmer and pay for the same using a prepaid e-Rupi coupon riding on the tried and tested DBT system. The same could be deployed for supplying power to BPL families. It will enable transparency as the cost of political intervention will be reflected in the budgets of state governments.
Repeated bailouts are both the cause and consequence of the extend and pretend band of incrementalism. It is useful to remember that there can be no equity — political or economic — without efficiency. The sector’s viability is central to energy security and to India’s aspiration of a $5 trillion economy.
Shankkar Aiyar, political economy analyst, is author of ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’; and ‘Accidental India’. You can email him at email@example.com and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.