Can sellers survive without paying customers? Can there be a sustainable energy security without a viable business model for producers? Can bankrupt state electricity boards enable 24x7 power? The megawatt promises of the Modi Sarkar are haunted by political rent.
Theoretically, the business of electricity generation, transmission and distribution is no different from other businesses. There is a producer, a supply system, a distributor and a buyer. In practice, in India, the producer is a private/public entity. Private money funds public projects. Fuel supply depends on Coal India, gas output and vagaries of policy. Transmission costs money which states don’t want to invest. Distribution is a monopoly of state electricity boards bankrupted by the epidemic of free power and theft.
India’s political class has institutionalised the nationalisation of economic costs and privatised political gains. Between 2003 and 2011, State Electricity Boards (SEBs) accumulated losses of over Rs 11 lakh crore (Source: World Bank). Six decades after Independence, over 280 million people have no access to electricity. At 900 kWh, per capita consumption is a fourth of what it is in China and a tenth of the developed world. Ten-hour outages are common and the idea of Make in India is trapped in blackouts.
The implications for the future are real. The Modi Sarkar has plans to ramp up solar energy by one lakh megawatts and nuclear energy by 60,000 MW. And there is more. Can there be supply without credit-worthy demand? To make it happen, government must insulate electricity generation and distribution from political shocks, from being tripped by pelf.
India needs to induct choice and competition—an alternate grid for producers and paying customers. The Modi Sarkar does not subscribe to the idea of privatisation, but surely it can invest in the idea of a professionally operated and managed distribution network—just as it was done in Gujarat.
India needs a national discom. Remember, electricity is on the concurrent list and the Centre can step in. It could be a public sector entity—distribution would align well with the cash-rich Power Grid Corporation. A robust balance sheet would enable higher value and volume power purchase agreements and curb price volatility. It could be a supplier to SEBs—insured by guarantees and lien on resource transfers and it could be a direct distributor across India. Sure, the geography is challenging, but the economics of scale makes it worth the effort. The other option is to offer regional circles via auction to private entities as is done in telecom—renewable after a period and embedded with primary obligations. Higher revenues enable investment in smart grid—if theft is curbed by even 25 per cent, the sector would have Rs 25,000 crore of investible funds.
Yes, the interests of farmers and households can be protected. A free power regime is really a no power regime. If governments invest in a smart grid, they can deliver subsidies through cash benefit transfers, deploy instruments like the mobile recharge coupon, reward conservation and institutionalise time-of-day tariff. The crux is to give the consumer—households and farmers—a choice of credible consistent access as against the hoax of discounts and subsidies perpetuated on them.
The megawatt nightmare is real. India produced 794,852 million units in 2012-13. Of these, 201,767 million units were described as “energy not realised”—that is transmission and distribution losses which are largely theft. Can an economy or any business survive if 25 per cent of its produce is robbed? It gets worse. In Bihar and Jharkhand, every second unit is “energy not realised”; in J&K, it is six of ten units; in UP, it is four of 10 units. What does it translate in monetary terms? Do the math: Multiply 201,767 million units with an average tariff of, say, Rs 5 = Rs 1,008,835 million, over Rs 1 lakh crore. This is just for one year.
Now look at the state of the buyers—the SEBs. Between 2010-11 and 2012-13, SEBs notched up losses of over Rs 2 lakh crore. The hall of infamy includes Rajasthan with Rs 46,000+ crore (2010 to 2013), UP with Rs 33,000+ crore, Tamil Nadu with Rs 37,000+ crore. Unsurprisingly, Gujarat, Kerala and Delhi are the only states with positive balances.
Bankruptcy has detained access and impacted investments. In January 2012, Manmohan Singh held a meeting of stakeholders to address the issue of projects stranded without power. The government organised a presidential fiat ordering Coal India to ensure supplies to the stranded power plants. Three years later—and nine months after the Modi Sarkar—nearly 30,000 MW of power-generating capacity involving investments of over Rs 2 lakh crore languish without fuel because SEBs cannot pay.
The problem with the ‘business as usual’ model is that it perpetuates sloth and losses. The aspiration for growth demands that the sector be liberated from the politics of economics and the economics of political
parties. shankkar.aiyar@gmail.com
Shankkar Aiyar is the author of Accidental India: A History of the Nation’s Passage through Crisis and Change