Taking politics out of power

For one, bipartisan political support is necessary for governments to restore regulatory credibility and depoliticise tariff setting

The electricity sector arguably presents the most critical infrastructure bottleneck, indeed supply-side constraint, facing the Indian economy. Standard solutions to the problem have revolved around deregulation and private participation in fuel exploration, power generation and distribution, coupled with efficiency improvements in public utilities. But such technocratic assessments simplify the issue and do little to meaningfully address the problem.

Any serious attempt to reform the electricity sector has to revolve around four objectives increasing fuel availability, reducing distribution losses, periodic tariff revision, and reforming free and unmetered agriculture supply. However, if we are to make progress with any of them, we need to go beyond policy reforms and efficiency improvements and resolve the political "collective action problem". Since each of them will adversely affect some significant electoral constituency, collectively political parties become prisoners of populist rhetoric, even when they privately support these reforms. Let me illustrate the challenge.

It is estimated that upto a third of India's power generation capacity, both thermal and gas generators, is lying idle due to fuel scarcity. Further, a number of thermal power plants have less than a week's fuel stock. Fuel shortages and large distribution losses are responsible for several inefficiencies and systemic distortions. For a start, they squeeze the actual available supply from both the generation and distribution sides. This, in turn, adversely affects the balance sheets of generation and distribution companies. In fact, addressing at least one of these two would be enough to satisfactorily resolve our peak power deficits and ensure adequate round-the-clock supply across the country.

While the state-owned coal mining monopoly, Coal India Limited (CIL), should shoulder its share of the blame for the current crisis, the major problems lie beyond mining per se. Land acquisition and environmental clearances are essential for both new mining projects and capacity-expansion in old mines, as well as for laying rail transport lines. In the prevailing social and political climate, where populist rhetoric and media trials shape the mainstream discourse, both these issues present difficult, increasingly insurmountable challenges. We therefore have a situation where even the mined coal is stuck at the pithead for lack of adequate transportation facilities and capacity-addition projects are delayed inordinately.

The private sector will be even less capable of addressing these non-mining challenges. Though the private sector would be effective at mining coal, the problems of transportation, land acquisition and environmental approvals would remain. In fact, private involvement is likely to vitiate the environment and make its resolution even more difficult. It is no wonder that the coal blocks allocated for captive power generation remained mostly unexploited. Governments cannot afford to be seen to be supporting private participants in "dispossessing" poor people and "damaging the environment". Nor would the private firms agree to policies like provision of employment to land losers, long used by the CIL to buy out local opposition to its projects.

All this means India's coal crisis can be resolved only through a mature political process. A reasonably generous relief and rehabilitation policy, which enjoys bipartisan political support, has to form the centrepiece of any such process.

At least two-thirds of the national average distribution losses at 23 per cent are commercial losses, mostly in the form of billing deficiencies or pilferage. While systematic energy audits and rigorous enforcement can help lower losses, the biggest contribution to commercial loss reduction has to come from the large and widely known pockets within each distribution utility where pilferage is rampant and enjoys wide political support.

Tariff increase, which is critical to the commercial viability of private investments in generation is another deeply political issue. It was precisely to depoliticise them that regulatory authorities were established. Unfortunately, they have become handmaidens of governments. Bipartisan political support is again necessary for governments to restore regulatory credibility and depoliticise the process of tariff setting.

Agriculture power reforms assume great urgency in view of the deep-rooted systemic distortions engendered. Free farm supply adversely affects the quality of rural electricity supply, indiscriminate use of motors deplete groundwater levels, and unmetered supply creates accounting problems and complicates distribution loss reduction efforts. The Gujarat model of laying dedicated agriculture feeders incurs massive capital investments. Further, the massive expansion of rural feeders would inevitably raise net technical losses, besides increasing the potential for commercial losses, while doing little to address the issue of long-term sustainability of farm supply.

A more cost-effective and efficient approach would be to assure farmers equivalent (or higher) units of free supply instead of restricting supply timings. Farm connections would be metered and agriculture tariffs fixed. Each farmer would pay his monthly electricity bill, whereupon he would be reimbursed the previous month's bill to the extent of the free units consumable. Further, the farmer can be incentivised to reduce consumption by reimbursing an amount proportional to his unconsumed units (from the free power unit allotted each month). Here too, non-partisan political support is required.

Political gridlocks are now a feature of India's political landscape. We need to draw the distinction between ideological opposition, as with say retail liberalisation, and such "collective action problem" driven opposition. While the former cannot be easily reconciled, if at all, an effective institutionalised mechanism for addressing the latter is possible. The onus will be on the government to build a non-partisan consensus on such issues, failing which such reforms will remain stillborn.

The writer is an IAS officer and graduate student at the Harvard Kennedy School, US

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