Cut Theft and Dacoity losses

The solution is to: one, allow complete, automatic pass through of global oil prices to domestic users. Two, set all oil related import tariffs at the peak rate (now 15 per cent). Three, put a resource rent tax on domestic oil producers that applies above a base oil price (set in the exploration contract) and varies with the international price. Revenues from this tax can be earmarked for development and introduction of energy conservation technology and alternative energy resources. Four, replace differential pricing of kerosene, whose adulteration of diesel is destroying Bharat III engines, by a direct subsidy to BPL households.

The nationalisation of coking (non-coking) coal mines in 1971 (1973) was justified in part by the need to use our abundant coal reserves optimally for the good of future generations (50-100 years). The talk now, 30 years on, is about how coal imports are needed as the coal is of poor quality and how it will not last very long in any case. What happened? Nationalisation created a monopoly, that along with the coal ministry and the regulators appointed by it constituted itself into a monolith that has destroyed this great national resource. Greedy politicians (from coal mine areas or coal ministers), the coal mafia and the public coal monopoly have milked this national resource in the name of the people. A former vigilance head of Coal India confirmed to me that the stories one had heard about the “coal mafia” (which controls the labour force in the mines) are indeed true. Is it any wonder that the Coal Mine Nationalisation Amendment Bill had been stuck in Parliament since 2000 and was allowed to lapse in 2004!

The solution: one, amend the Coal Nationalisation Act to allow private entry into mining. This will end state monopoly and introduce competition into the coal mining industry. It will allow specialised companies to come in, reduce demand risk through diversification of buyers, exploit economies of scale, make long gestation investments in mining and processing of high ash coal and in R&D for more effective use of available (quality/type) coal. Two, sell 49.9 per cent of the shares of public coal mining companies. This won’t disturb the government’s management control, but will provide an incentive to the people and the media to shed light on the worms operating under the stones. Hopefully the performance of the state companies will improve to the point they can compete with imports. Three, reform and strengthen the coal regulatory system by making it independent and professional.

The Electricity Act (2003) is an important step in electricity reform. But large private investments will not flow unless three critical problems are addressed and policy and regulatory risk is reduced. The most fundamental problem is electricity theft. With 50 per cent T&D losses Delhi electricity privatisation will eventually lose support unless this problem is tackled. The Theft and Dacoity carried out by the electricity mafia is legendary. Several years ago, a central electricity minister, who had himself been a DESU union leader, had no hesitation in confirming this fact. This problem is not unique to Delhi but perhaps Delhi can show the way by taking on and destroying the electricity mafia and thus reducing the cost to honest users by about 40 per cent. This would eliminate the need for cross-subsidies and allow a uniform price for all electricity users.

The second issue is that of the cross-tax subsidy to be paid by independent power producers for open access to the existing controlled government distribution system. Unless the methodology is clearly specified and is reasonable and limited by some upper bounds, the risk of arbitrary imposts will remain and deter investment.

The third issue is the setting up of an independent, professional regulatory system. This requires regulatory laws ensuring sufficient delegation in all matters related to standards, norms, interconnection, pricing and quality of service and clear rules and procedures for financing of regulators, selection of chairman and members and adequate professional staff. State governments and politicians are loath to lose control of the levers of power and pelf and the setting up of this system is going to be a long and painful process. Unless this is done the regulatory and policy risks will remain.

With the best of intentions, these reforms will take a decade to fructify. In the meanwhile a radical solution is required. The government should declare a 10-year regulatory holiday for all new private generation, T&D companies (starting from date of first completed project). Producers and distributors would be free to supply electricity to any buyer at mutually agreed prices, terms and conditions. On completion of the regulatory holiday, normal regulatory systems would become applicable. By then the power shortage would be eliminated.

The writer is director and CE, ICRIER