MW woes: India needs a national discom

It is a curious phenomenon. Problematic issues in the political economy seem to be governed by a peculiar circle of governance.

Published: 24th June 2018 04:00 AM  |   Last Updated: 24th June 2018 07:23 AM   |  A+A-

It is a curious phenomenon. Problematic issues in the political economy seem to be governed by a peculiar circle of governance. Every few years a problem ostensibly resolved returns to haunt the political economy and the issues enveloping the issue are veritably the same.On January 18, 2012, Dr Manmohan Singh, the then prime minister, met with industry bigwigs of the power sector. Over `2 lakh crore of public monies were locked in stranded projects hit by poor fuel linkage, clearances and payment dues from debt-laden state electricity boards. The projects were on RBI’s list of stressed assets as early as in December 2011. A committee was tasked with chalking out 30-day, 60-day and 90-day plans to resolve issues. A series of meetings and standoffs followed, and over 850 days later, most of the issues were pending when UPA demitted office in May 2014.

On February 12, 2018, an RBI notification mandating banks to classify even a one-day delay in debt servicing as default launched the sequel of an old script. Banks and the promoters of power projects argued for forbearance by the regulator. On March 7, 2018, the Parliamentary Standing Committee on Energy unravelled the state of affairs and said, “Thousands of MWs are under severe financial stress and are on the brink of becoming NPA.

This is due to fuel shortage, sub-optimal loading, untied capacities, absence of FSA and lack of PPA, etc.” In 2018, banks’ exposure to stressed projects stood at `4.82 lakh crore—34 projects with 40,130 MW generating capacity and outstanding loans of `1.74 lakh crore were NPAs. On June 1, 2018, the Allahabad High Court heard a petition filed by the Independent Power Producers Association of India and directed the finance ministry to hold meetings with stakeholders to resolve the issue. 

In June 2018, it would seem the saga of stranded power projects is back to square nay circle one. There are plants with power purchase agreements (PPAs) but without fuel linkage and there are plants without either plus the sanctity of the PPA is being questioned. To be fair the Ministry of Power has taken steps since 2014. One major step was UDAY, wherein the government created a mechanism to shift the high-cost debt of state electricity boards on to the state budgets and pushed for reforms that included curbing of transmission and distribution losses. The cost of debt and losses came down. Clearly it was not enough and there is only so much the Central government can do—and shifting the debt off the SEB books is akin to liposuction if states continue with a high-cholesterol diet of profligacy.

The elephant in the room is the viability model of the power sector. This column had in February 2015 (Politics Trips MW Dreams, arguing for a national discom, had asked if there could be a market where a seller can survive without a paying customer. Can bankrupt SEBs power the promise of 24X7electricity on an unsustainable economic model? 

The power sector is like any business—a supply chain, a producer, a distributor and a buyer. India has an installed generating capacity of 3.43 lakh megawatt, of which 45 per cent, or over 1.55 lakh MW, is privately owned (CEA/May2018). The data on plant load factor is revealing. Private projects are operating at 57.8 per cent plant load factor. Can a business be viable if its capacity is not fully utilised? Can a project be viable if it pays for inputs in advance but faces uncertainty over dues?

The government informed Parliament that in 2016-17, 240,864.31 Million Units or 21.81 per cent of power generated was lost. Each per cent lost costs `4,146.60 crore—do the math to get a picture of the loss of public money. Can a business survive if it cannot extract the cost/price of a fifth of its output, if it cannot meter supply and is obliged to supply another chunk free? 

Einstein once said that doing the same thing repeatedly and expecting different results was madness. He could have been talking about public policy failures in India. For two decades India has tried solving the same problem with similar solutions. This must change. The power sector requires a total overhaul. To start with, there is an urgent need to induct technology-enabled competition in the most neglected segment, which is distribution. India needs a national discom—publicly owned by a consortium of Central utilities like PGC, PFC, NTPC and REC but which can outsource to franchisees—to offer the paying consumer choice and competition to the dysfunctional SEBs. 

This entity, with some financial engineering, can enter into agreements with its own utilities and stranded projects (PPA portability can enable purchase of idle capacities and alleviate the problem of NPAs) and supply electricity, perhaps at a premium for reliability, to consumers using the SEBs’ grid for a fee. To ensure viability the issue of costs and pricing must be re-arranged. The Electricity Act 2003 demands metering of every unit and this must be implemented. 

Unquestionably, democracy obliges governments to nurture the weakest. Subsidies to farmers and domestic consumers could be through direct benefit transfers as it is now with LPG. Over a period of time the national discom can, through competition, propel the adoption of new technology, for instance direct current (DC) supply to homes, enabling conservation, buying renewable power from entities like townships, promoting transition of agricultural pumps from diesel/electricity to hybrid power et al.

The question to ask is whether all those who want/need electricity get it. Nearly 31 million homes are not yet electrified. The second question is whether all those who are connected get reliable power. The per capita consumption data says it all. The moot point is that no economy has progressed without fixing energy security. The aspiration of growth cannot be fulfilled without fixing the sector that will power it.

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