Power sector bomb set to explode

So with the cost of adding new power going up dramatically, we’re heading for a situation in which no one will want to buy the power that’s being produced but the state electricity boards will have to continue to pay for it. This, incidentally, has begun to happen in India with around 2,000 MW of power already surplus in the Eastern region which is not being bought even by other power-starved states. Andhra drew power some time back but soon discontinued this as it couldn’t afford the power which effectively cost around Rs 4 per unit. This situation is certain tomultiply across all regions once new power projects, which cost a lot more, begin coming up.

A recent calculation by former Central Electricity Authority chief S.N. Roy takes into account the maximum amount by which tariffs can be raised across all segments like, say, increasing agriculture tariff six times and domestic tariff 2.5 times to calculate the financial situation of SEBs over the next five years. On the basis of the average cost of power, including that from the new plants slated to come up and the maximum tariff which looks feasible, he concludes that the commercial losses of SEBs could go up to Rs 80,000 crore, or around seven times what they are today. The calculation may be a bit alarming, but it is certainly indicative.

Nor does the solution lie, as most of us think, in just charging farmers more for the power they consume, nor is that entirely justifiable. First, agricultural power is what is called `off-peak’, that supplied in the off-peak hours. In most countries, off-peak power isusually priced at half or less of domestic rates. Households in India pay around Rs 1.2 per unit on average. And since farmers don’t usually get power for more than a few hours a day, there isn’t much of a case for charging them more than, say, 50 paise per unit.

Interestingly, according to estimates made by the Planning Commission last year, charging farmers 50 paise per unit will yield an additional Rs 2,400 crore or so, against the SEBs commercial losses of around Rs 10,000 crore. In fact, while the rate of return on capital investments for the SEBs is minus 18 per cent today, even if 50 paise was charged the returns would still be a negative 14 per cent.

SEBs, who are party to the theft, also find it more convenient to say that a lot of power goes to agriculture and is not paid for. But in several states not more than half the electricity that is supposed to be supplied to farmers actually gets there. A recent survey by IIM Bangalore found, for example, that UP farmers got just 35 per cent of thepower that the SEB said it had supplied while in MP the ratio was even lower. So it’s a cute little nexus. The SEB will say that the prime solution lies in charging farmers more, and the politicians will keep opposing this. No one ever gets to know the real picture and thousands of crores get pocketed in the bargain. And, of course, no politician insists that proper metering be done of electricity so that it is easy to track the problem. Incidentally, one of the major planks of all World Bank power restructuring packages is installing of electric meters at the main feeder lines to begin with.

The solution to the problem, apart from tackling issues such as proper ratios of `baseload’ and `peaking’ power stations, is really to ensure that transmission losses as well as theft are tackled on a war footing. This means more emphasis on ensuring that lots of investment is channelised into setting up transmission networks. Insisting on metering of electric power as a first priority is also an issue which cannot beemphasised enough. None of this is anywhere near as glamorous as setting up 40,000 additional MW of power in the Ninth Plan, but it is critical. Otherwise, disaster stares us right in the face, and not too far into the future either.