1. Recent developments in the power sector and the efforts to introduce reforms portend ominous signals for the future of the electrical supply industry and the country. Having been intimately associated with power development in all its diverse aspects for nearly half a century, we consider it our duty to caution the Central and the State Governments of the perils of pursuing a policy head long which at best is adhoc and will lead to gradual disintegration of the electric supply industry with cataclysmic consequences for the nation. What is of utmost concern is that the reforms are being undertaken hastily under pressure and coercion, in a piece meal fashion. And on the basis of advice obtained, at a very high cost, from external consultants who have little experience of power sector management and operations and very limited exposure to the Indian power sector and its compelling circumstances.
2. The primary concerns that the Indian Electric Power Supply
Industry has addressed in the last fifty years have been:
a) To make electricity a backbone for food security especially
after having to live from ship to mouth under the PL 480. Failure of this
industry will result not only in a power crisis but also a food crisis.
b) To take electricity to rural and urban slum areas and provide
electricity to the economically disadvantaged irrespective of their capacity
to pay.
c) To encourage and build self reliance not only in electric
power generation, transmission, and distribution but also in manufacture,
erection and commissioning of plant and machinery.
d) To ensure regional co-operation in a complex plural
society within a situation of shortage of capital and resources.
e) To support the growth of industry, rail transport and communications.
f) To optimally utilise the domestic energy resources.
In the process several compromises have been made particularly in the
financial viability of the State Electricity Boards. There is a need for
appropriate reforms, which are inevitable. However reforms should not compromise
with the fundamental concerns listed above, which we believe remain valid.
The primary responsibility of power sector lies with the State Governments.
Reforms must start with the financial viability of the SEBs. Very little
is being done in that direction. Even where reforms have been carried out,
there has been no effort to test the appropriateness of the reforms. Instead
whatever has been done in Orissa or Greater NOIDA is sought to be extended
to all the States, without first evaluating the results of the change.
3. Reforms must be based on the experience gained in the last
fifty years, the socio - economic ethos, the natural resource endowment
and its geographic distribution. There is a need for a comprehensive policy
based on the conditions obtaining in India. We have not seen any comprehensive
study establishing how the proposed structures and changes
would resolve the problems of the industry. To the best of our knowledge,
there is no study establishing the advantages of, unbundeling the vertically
integrated State Electricity Boards into a system consisting of multiple
agencies or reducing to a consultative body a comprehensive and technically
competent regulatory organisation, the CEA. Instead, systematically
and on an adhoc basis all the institutions built up over the last fifty
years, are being dismantled. Private sector Independent Power Producers
are being given enormous concessions both in financial terms and load conditions.
The policies pursued since 1991, have resulted in :
a) Very large shorfall in the achievements of the eighth plan
targets.
b) Steep increase in capital costs of power generation projects.
c) Costs governed by financing mode rather than project features.
d) Vanishing economies of scale and in some cases even the reversing
it.
e) Competitive Bidding has become meaningless under the system
of MOUs.
f) The traditional premise of determining the relative economies
of various modes of generation is being distorted.
g) Choice of mode of generation based not on relative merits
and economies but on expediency. Inspite of economies and other merits,
hydro has become the least preferred option. Imported fuel becoming the
most preferred.
h) Regional optimisation and national priorities being replaced
by State chauvinism.
i) Economic load dispatch put in jeopardy to accommodate
Independent Power Plants at very high Plant load factors.
j) Compromising the critical and statutory CEA’s techno-economic
appraisal and approval. For example, in gross violation of the law, in
the case of the Dabhol Power Corporation, CEA made a technical appraisal
and gave its technical approval, economic evaluation was left to
the Ministry of Finance Govt. of India.
4. The public sector involvement in the power sector would have to be continued and strengthened. Studies indicate that the private sector is seriously constrained by its inability to mobilise the kind of resources required for power development besides limitations of organisation and contractable inputs. `The India Infrastructure Report - Expert Group on the commercialisation of infrastructure projects’ has projected that, even by the most optimistic expectation foreign investors would provide for 15 % of the investment required. Eighty five percent of the investment would have to come from Indian resources. Shri Manmohan Singh has now, in retrospect, admitted that the reduction in budgetary support to the power industry in the eighth plan was a mistake. The present Finance Minister has recognised this and has sought to correct this mistake.
5. The Central Electricity Authority is a unique organisation
comprehensively involved in :
a) Planning for power development.
b) Design and technology development.
c) Techno-economic appraisal of projects.
d) Construction and plan progress monitoring.
e) Operation monitoring of power plants.
f) Technical consultancy.
g) Monitoring the performance of the State Electricity
Boards.
h) Power policy formulation.
i) Grid management.
In order to discharge its functions some of which are regulatory,
some advisory, some innovative, some consultative CEA is organised
in such a manner that there is complementarity between the various responsibilities
and functions. CEA has been working with the entire industry in a
participatory mode, which is best suited to the a concurrent subject.
Besides the Constitutional character of the industry, the operating philosophy
of CEA has been that in a developing country like India, expertise would
be scarce and it should be shared with the entire industry in areas of
project formulation, project operation and advising on techno-economic
aspects. CEA’s approach of constant updating of its technical skills through
continued involvement with designs enables it to independently plan and
apprise projects without depending on any other agency. It must be appreciated
that, given the fact that electrical power has no finished goods
inventory and is entirely on line, in a capital scarce developing nation
a situation of acute power shortages can only be minimised or eliminated
only through meticulous and advanced planning. These aspects need to be
critically examined when proposing a stand alone regulator devoid
of planning function. A non partisan evaluation of CEA would suggest that
CEA’s contribution to technology development and self reliance has been
phenomenal not only to the supply industry but also the equipment manufacturing
industry. That is what the evaluation of the Word bank has also stated.
There is scope for strengthening CEA, particularly in the matter
of tariff which at present is largely limited to nuclear power and central
sector power.
6. The existing legislation has withstood the test of time and
enabled India to add almost 80, 000 MW since Independence. The problem
is in its violation. For example :
a) CEA has a statutory right and obligation
to advise the Government of India, but in actual practice it has been reduced
to a subordinate body functioning under the Ministry of Power. Its denigration
by and subordination to the Ministry of Power has reached alarming
proportions since 1991.
b) SEBs have the statutory right and obligation to fix tariffs.
In actual practice it is the political dictates of the State Governments
that decide.
c) State Governments have a statutory obligation to ensure that
SEBs have a 3 % rate of return. Almost every State Government violates
this statutory obligation. If this statutory provision is enforced
the additional resource mobilisation would be well over Rs. 10,000
Crores per annum.
d) Theft of electricity is not due to inadequacies in law, but
due to the political clout the thieves enjoy.
If there is no respect for the existing law and it is violated by the Government with complete impunity how would discarding the existing laws and replacing it with legislation designed by and for developed countries improve the situation ?
7. The Government on its part should organise a comprehensive examination of the various options available for restructuring consistent with long term and specific goals and objectives, some of which we have tried to enumerate above. Based on that, Government should bring out a White Paper outlining the advantages and disadvantages of the proposed reforms over the existing institutions and laws not only for the industry but also the consumers and the employees. Such a white paper should be subjected to a national debate in various fora including the Parliament, State Legislatures. This exercise should be entrusted to the CEA in its statutory capacity as the advisor to the Government of India on national power policy formulation. Only on that basis should restructuring proposals be finalised. The power sector is too vital to be left to a few individuals and external institutions who have no long term stakes. It is our earnest request that the present efforts to restructure the industry, the institutions built up over the last fifty years and the law on a piece meal basis should be stalled.
8. It is difficult to build technically and professionally competent
organisations. The Constitutional structure of the power industry was conceived
by Dr. Ambedkar and nurtured by Shri Jawaharlal Nehru. The technical foundations
of the industry and institutions like CEA were laid by stalwarts such as
Dr. A. N. Khosla and Dr. K. L. Rao. These should be preserved and
strengthened with care instead of being demolished by self serving external
advisers and for reasons exogenous to their professional competence and
functioning.