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BW Businessworld

Politics Of Policy: Shock and Oh!

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The two-day power grid failure painfully underlined the failure of reforms in power sector. Failure not because reforms were not attempted. Failure because reforms were not allowed to be implemented effectively. Power sector could have been the telecom sector of India. Despite policy tangles, more than 900 million mobile connections are stunning a symbol of telecom revolution.

Power could have been the same. The entire country could have been electrified if the power sector reforms had worked the way they were supposed to.

Changes in power policy began in mid-90s, around the same time as telecom. The Central Electricity Regulatory Commission, the most empowered regulator in utilities sector so far was created. Similar regulators were set up in each states. This was the most comprehensive regulatory mechanism to be set up across the country in any sector till then. Key to the reform process was the unbundling of the State Electricity Boards. The boards were broken into generation, distribution and transmission companies. Each was to focus on its core activity. This also allowed them to be independent profit centres.

Many states fought the unbundling, resisted, and then gave in. The worst fear of the regional political leaders was that the regulator would take away the privilege of pricing electricity. The unbundled companies would seek profits and efficiency by reducing power theft. All this would affect the discretionary power of officials and political leaders.

But this fear was misplaced. Slowly but surely, the establishment coopted the new system. Pliable regulators were appointed. The unbundled  companies were not allowed to chase power thieves. Delhi was about the only state to go all the way and privatise the distribution companies.

The undermining of the new framework meant that political parties could continue to promise free power. They would continue to resist tariff increase. And to protect the monopoly of the distribution companies, they would continue to stop paying consumers the option of sourcing their power from any supplier.

So brazen are states that free power doled out to citizens are shown as transmission losses. The cost of such losses are then borne by central power bodies. 

Combine the mess in distribution and regulation with falling targets in fresh generation for a schocking recipe for grid failure.

The 5th five year plan that ended in March 2012 had a target of generating extra capacity of 78,000 MW. The achievement was 30 per cent short of target. The Planing Commission and the power minister were in a fresh tussle over the target for the next five years. The commission wanted it higher at 100,000 MW but the ministry wanted it lower at 76,000. Even lower than the previous five years. They seem to have finally settled at a target of 90,000 MW.

A target that is doomed not be met yet again. The question is now by how much.

The reasons are not too tough to understand either. More than 60 per cent of plants use coal that is in short supply. The government has not been able to take any effective steps to increase supply or even bring in private commercial coal mining. Secondly, states want to use power generated by other states. No state wants to take on the headache of allotting precious land for power projects. And finally the environmental clearance take so long that investing in power seems like a lost cause.

Fresh investment in smart grids, transmission and distribution is essential to ensure that the extra power generated reaches consumers efficiently. The grid failure occurred due to indiscipline between states that drew more power than they were supposed. This is a bit like the licence quota regime that was needed in an economy beset by scarcity. The answer is not more penalty for overdrawing but more power for whoever wants it. A growing nation needs power. And a growing nation should be prepared to pay for power. Unless these basic issues are resolved, power grid failures will continue to remind us of the great power reform that wasn’t.

(Pranjal Sharma is a senior business writer. He can be contacted at [email protected])