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Why Delhi Looks To Gujarat Model For Power Sector Reforms

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Prime Minister Narendra Modi on Monday (14 September) met the top brass of power utilities, particularly electricity distribution companies (discoms), to review their performance and discuss the issue of their burgeoning debt. The combined debt of power distribution companies (discoms) stands at over Rs 3 lakh crore. Faced with acute financial stress, many of these are unable to buy power. 
 
According to several reports, the National Democratic Alliance (NDA) government is working out a bailout package for the debt-ridden discoms so that the government can achieve the goal of providing power to all.
 
Modi earned praise for fixing the power sector in Gujarat when he was Chief Minister. A national solution would polish his image after a series of setbacks to his agenda of economic reform in recent months. In 2014, Gujarat achieved round-the-clock three-phase power supply to its 18,000 villages and 9,700 hamlets.
 
When Modi took the reins in 2001, Gujarat’s electricity supply was as primitive as the rest of India’s. Gujarat had a 500 megawatt demand-supply shortfall, with revenues of $1.1 billion and losses of $393 million. Ten years later, it boasted a power capacity surplus of more than 2,000 megawatts, which it now exports to other states. It made $93 million in annual profit from $3.8 billion in revenues.
 
How did Modi accomplish this? Experts say the power sector reforms undertaken by the Narendra Modi-led BJP government catapulted Gujarat into a power surplus state. The Jyoti Gram Yojana, controlling theft and losses and unbundling of distribution companies into multiple entities became the pillars of the State's success.
 
Modi also gave top priority to the resolution of power woes and dealt with issues such as power theft in agriculture with strict enforcement. 
 
Another key reform was the separation of the feeder line that supplied power to the rural areas into two: one to supply power for agricultural needs and other for household and other needs. Since the tariff for power used for agricultural purposes was much lower, many used this subsidised supply for their household needs as well, resulting in huge losses for Gujarat State Electricity Board.
 
The Gujarat experience clearly demonstrated what strong political will to reform the electricity sector can achieve. Of the many innovations Gujarat tried, the separation of feeders was a master stroke. It not only helped farmers get quality power at fixed time but also ensured that leakages were curtailed.
 
The BJP government began plugging the leakages in distribution. Power thefts in Gujarat then ranged between 20 per cent in urban areas and 70 per cent in rural regions. It passed a law against power thefts and set up five police stations across the state, solely to nab such thieves. Stringent action began against those who ran up large power bill arrears, including disconnecting their supply.
 
The Modi government took care to ensure that the state electricity regulator - unlike in most states - remains truly independent of political pressures.
 
India has doubled energy generation capacity in the last decade, helping to more than halve its peak power deficit, but transmission and distribution have remained largely unreformed, leading to regular blackouts across large swathes of the country and debts that threaten the health of the banking system.
 
Getting Indians to pay more for their power is not easy. Across the country around a fifth of power goes unpaid for and many still believe free power is a right rather than privilege..
 
The performance of Gujarat in turning around the GSEB is noteworthy. Timely tariff revisions have made the sector viable enabling the state to set up adequate generation capacity. With more revenue, the state was able to invest in a more reliable grid, so that Gujarat is today the only state in India to supply 24/7 three-phase power to all of its villages.
 
Gujarat's transformation from a power deficit to a power surplus state in just one decade is a marvel that happened because Modi took tough decisions.