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Evaluation on the progress of the various reforms suggested under the Common Minimum National Action Plan for Power - P. Abraham-Maharashtra State Electricity Board


Evaluation on the progress of the various reforms suggested under the Common Minimum National Action Plan for Power

Shri P. Abraham, Former Power Secretary to the Government of India and Chairman, Maharashtra State Electricity Board; November, 2010

Shri P Abraham was the Secretary, Power when the Indian economy, as well as, the power sector was going through the major change of liberalisation. The phase of liberalisation saw a Common Minimum National Action Plan for Power drafted at a Conference of Chief Ministers in December 1996, which highlighted the steps that the country needs to take if it wants to save its sinking power sector. After nearly 14 years, we ask him to evaluate the progress of the various reforms suggested under the Common Minimum National Action Plan for Power.

Question: You were instrumental in the writing of the Common Minimum National Action Plan for Power, which now forms the national agenda for the power sector program on reforms in the power sector. Do you think that the implementation of the suggested reforms has progressed as per the plan?

Answer: Yes, most of the programs that we listed in the Common Minimum National Action Plan for Power have been implemented. For instance, we had strongly suggested establishing regulatory commissions which has been achieved and they are doing a good job. All of the states have established the State Electricity Regulatory Commissions (SERCs), which are again doing good jobs. However, the biggest failure of these SERCs is that they have not been able to revise the tariffs in a regular manner, which was one of the primary reasons for setting them up. Even if these commissions are not able to do that on a year-to-year basis, they should at least raise the tariffs every second year. Without raising the tariff, you cannot implement any reform; after all, you have to get some money back to reinvest it. There are inputs which are going to cost, and if you are not getting back the money, its only the State Electricity Board which will have to ultimately pay for it. So, while many suggestions have been incorporated, some of the important ones have been lagging behind.

Question: Do you think that this reluctance on the part of SERCs towards raising the tariff will impact future investment in the sector by private entities?

Answer: "There are some states whose regulatory commissions have not increased the tariff for the past 10 years, a fact reported by the Finance Commission"

Absolutely! The situation is getting better with the entry of private players into generation; however, transmission also requires huge investments. The T&D sector has become a very weak link of the chain, which is the reason for the mounting T&D losses. The steps taken are not adequate; you have to keep on sanctioning substations of 33 KV to 400 KV. For putting these stations, you need money, which, in turn, you need to recover from consumers but since there is no recovery, there cannot be any further investment. Setting up of the SERCs has not been of much help in this regard because there are some states whose regulatory commissions have not increased the tariff for the past 10 years, a fact reported by the Finance Commission. The entire purpose of setting the commission was to avoid going to the state governments to fix the tariff, which has been completed defeated.

Question: 10th five-year plan saw the enthusiastic laying of the road map for the reforms in the power sector. However, nearing the end of the 11th plan, we are still facing the issues of power deficits, high losses in distribution, implementation of open access, ever rising subsidy burden, etc. What is your take on the performance of the 11th plan?

Answer: The target set by the Government of India for electricity generation capacity addition in the XI Plan was about 78,000 MW, which translates to additions of roughly about 15,000 MW every year. However, the government had to revise the target to 62,000 MW. One of the main reasons because of which we always fall below our targets is the deficiency in the equipment supply. One should also note that considering our past record, the achievement of the 11th Plan is far better than the previous plans. 10th Plan added around 20,000 MW, which was highest capacity additions ever achieved during any plan period till then. However, in 11th Plan, we have already exceeded what we used to achieve in five years. So from that point of view, the government of India has already done a much better job. It is the result of the various follow-ups, continuous monitoring of the projects, finding out their problems and resolving it immediately.

"Considering our past record, the achievement of the 11th Plan is far better than the previous plans. We have already exceeded what we used to achieve in five years"

However, looking at the needs of our country, this is not enough. As I said earlier, the biggest deterrent in this regard is the lack of adequate equipment supply. There are more players who have entered the equipment development field now and with their contribution, things would roll more smoothly. Though the government is expecting 62,000 MW but even if they end up achieving 20,000 MW more, it would still be a major achievement. In the future, it will be much better.

Question: Many steps have been taken to free the market but do you think at its present stage, the market will be able to lead the sector on the path of delivering cheaper power in the coming years?

Answer: I am very happy about the entry of the private sector. Though gradually, but we are advancing towards increasing the role of private participation in the power sector. The first step towards this was to scrap the need for licenses for putting up a generation station. Later, private participation was invited into the coal sector as well. Now coal is supplied by private companies as well after procuring the license from the government of India. This step released the raw material which is needed in abundance by the power sector. In addition to this, the government of India now permits the import of coal which was not allowed in the past on account of insufficient foreign exchange reserves.

However, a new problem which is threatening to slow down, if not stall, the private participation is the `environment issue'. These new environmental issues are seriously affecting the supply of coal. Most of the coal is located in the forests, and after the Ministry of Environment and Forests has come out with go and no go classification areas, then how can the companies get the coal out of there? Though the ministry is making all the right noises and making people aware of the environmental concerns, but you cannot stop the development. If you simply say `No Go', then no development can happen. You come out with regulations that help in replenishing the environment, for instance, if a project requires a 100 acre of forest to be destroyed, the developer will have to create a 200 acre of forest to supplement the nature. Take measures to minimise the environmental damage but do not prevent the coal excavation as the country's need for power is going to be answered by coal for a long time to come.

Question: What are your views on free power as an approach?

Answer: Free power should only be given to those who deserve it. An agriculturist, who grows grapes and markets them on commercial basis, is also a farmer but there is no logic in providing him free power. It's hard to buy the logic that a farmer owning more than 100 acres of land cannot pay for the electricity that he uses. However, a poor farmer with only 2-5 acres of land for whom it is difficult to make a living on his own should definitely be provided free power. These farmers, whom the government has termed marginal farmers, do not have many options when it comes to growing crops and thus, should be given all the support.

"In the name of free power, you are giving it to the big farmers who have anywhere between 100 to 200 acres of land. As it is power is subsidised, on top of that you give it for free, I don't agree with that"

Another thing is that free power encourages a lot of misuse. Since you are not paying anything, there is no value for you. Unless some money goes out of your pocket, you tend not to worry about how much electricity is being wasted. In the name of free power, you are giving it to the big farmers who have anywhere between 100 to 200 acres of land. As it is power is subsidised, on top of that you give it for free, I do not agree with that.

The reason the state governments are not charging these big farmers is because these people control the votes. The fellow who owns 500 acres is going to make the Chief Minister; nobody wants to alienate him by taking away his free power.

Question: What are your views on free power as an approach?

Answer: Free power should only be given to those who deserve it. An agriculturist, who grows grapes and markets them on commercial basis, is also a farmer but there is no logic in providing him free power. It's hard to buy the logic that a farmer owning more than 100 acres of land cannot pay for the electricity that he uses. However, a poor farmer with only 2-5 acres of land for whom it is difficult to make a living on his own should definitely be provided free power. These farmers, whom the government has termed marginal farmers, do not have many options when it comes to growing crops and thus, should be given all the support.

Another thing is that free power encourages a lot of misuse. Since you are not paying anything, there is no value for you. Unless some money goes out of your pocket, you tend not to worry about how much electricity is being wasted. In the name of free power, you are giving it to the big farmers who have anywhere between 100 to 200 acres of land. As it is power is subsidised, on top of that you give it for free, I do not agree with that.

The reason the state governments are not charging these big farmers is because these people control the votes. The fellow who owns 500 acres is going to make the Chief Minister; nobody wants to alienate him by taking away his free power.

Question: APDP- APDRP- RAPDRP, we are changing the names and bringing in more stringent norms for implementing the plans, but yet the scheme has not generated great results except a few states. What are views on it?

Answer: The reason for its limited success is that some states are not implementing it the way it should be implemented. Since 90 percent of the money is subsidised by the government and only 10 percent is given by the state governments, I do not see any reason for them not implementing it. If the total budget for implementing the scheme is, say, 200 crore, then it is only 20 crore which the state governments have to pay, the rest 180 crore is getting paid by the government of India. Unfortunately, the decision to implement it and the actual implementation lies in the hands of the leaderships of the state governments. If this leadership is not doing it then you cannot blame the government of India or the scheme. The scheme is good but it's the political will which is lacking. Unless there is political will at the states, the reforms are bound t o fail as, primarily, the reforms are meant for the states.

"Unless you escalate the power sector to the national level, we will keep on having problems. The reforms which are introduced in the country are not uniform, they differ from state to state and therefore, the results also differ from state to state."

Also, I feel that unless you escalate the power sector to the national level, we will keep on having problems. The reforms which are introduced in the country are not uniform, they differ from state to state and therefore, the results also differ from state to state.

Question: What or who do you think is responsible for the huge T&D losses - the distributing authorities, the government or the sector policies?

Answer: T&D losses happen because of both technical and commercial reasons. The technical losses happen because you are not able to provide the adequate technical instruments or appliances to reduce the power losses. And, the commercial losses are totally because of the mismanagement of the board. The government is not responsible for this. The government can only be held responsible for not providing them with adequate money for creating the infrastructure of the transmission lines, substations, etc., but the day-to-day management is the responsibility of the commercial organisation, that is, of the distribution company. One of the reasons that R-APDRP was formulated was to reduce the T&D losses. This scheme has been only implemented in the urban areas, places which have the highest transmission and distribution losses. The billing is not done regularly, the collection is not on time, a lot of corruption takes place, and losses are not accounted for and so on and so forth. These are all the responsibility of the distribution companies.

Question: When you became the power secretary in 1995, you were for competitive bidding route but it has taken close to 15 years to bring it closer to the reality and yet there are many in central undertakings that are not for it. What are your views on it?

Answer: Time is the essence of reforms. You can keep talking indefinitely without implementing it and by that time further deterioration takes place. It is indeed very unfortunate that what we talked about in the year 1995 has not yet seen the light of the day. However, it is on the right track now. This is going to bring in competition which would prove beneficial for the entire sector. The basic reason because of which the reforms failed when they were introduced in 1990s was because there was no competition.

There are many differences in the basic nature of the private sector and the government sector. While if a person is not doing his or her work properly, he or she is immediately thrown out, the government organisations do not have such pressure; which leaves ample room for inefficiencies. The public sector is not able to improve its efficiency as compared to the private sector. All said and done, private sector is more efficient because of its incentives and punishment policies, which a public sector can never match. All these inherent features will help private sector in the race of competitive bidding.

Another claim made by the public sector companies is that there is a lot of interference by the government which hampers their progress. But, as Chairman of your company, you should be able to stand the interference. Allowing or not allowing a minister to interfere in your working is your decision. For instance, in the case of Regulatory Commissions, a fixed tenure of five years has been provided. Nobody can remove you till your five years are over. However, if you are still not doing what you have been appointed to do, then nobody can help you.

Question: How is it going to change the power sector scenario? Will these PSUs be able to win projects against the intense competition?

Answer: When I am paying a price for a service, I am not interested if it is a PSU or a private company. However, if a public sector company can equal the cost of a public sector, then it is good. BHEL used to get some purchase preference, which was that if a price was quoted by the lowest bidder, the public sector will also get some. Another aspect is price preference which allows some preference in price for the public sector. For instance, if somebody quoted Rs. 2, I might still give it to public sector at Rs. 2.50. That is price preference for you because you are a public sector organisation. Apart from all this, the public sector should compete and if they lose then nothing can be done about it.

Another natural outcome of competitive bidding would be that it would help in offsetting the tariff losses. Regulatory commissions will also be happy as their work for setting the tariffs would be taken care of by the process of competitive bidding.

 

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