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By Deepak L Xavier The Indian government's National Electricity Policy 2005 appears to be governed by the liberalisation themes of competition and privatisation. What does the policy imply for domestic consumers and farmers?
The National Electricity Policy (NEP) 2005 was notified by the power ministry, under compliance of Section 3 of the Electricity Act 2003, in February 2005. The Electricity Act 2003 enjoins that, from time to time, the government must prepare and publish a national policy for the development of India's power system. The latest policy, which takes off from the Electricity Act and previous draft policies, continues the theme of competition, profit-making and privatisation in the power sector. The power sector, a government monopoly until recently, has been the most sought-after sector for investment by private players. The reason is quite obvious: there is huge and persisting demand for quality power across the country by various categories of consumers. But what does the National Electricity Policy have to offer millions of ordinary consumers and farmers? Though the availability and total usage of electricity by domestic consumers and farmers is extremely low compared to that of the industrial sector, the number of consumers in these two sectors is far higher than that of industrial users. Unless the interests of the former are taken into account, power sector reforms will lead us nowhere. Agenda for privatisation Reforms in the power sector were formally introduced along with economic liberalisation in 1991-92. With the adoption of liberalisation policies, the Indian government had to enforce reforms in the power sector under the directive principles of various financial institutions (mainly Bretton Woods institutions and the Asian Development Bank). While lending to the government for necessary public spending on the power sector, these institutions set their own pre-conditions -- mainly, the withdrawal of state spending on the social sector and the involvement of the private sector in most sectors irrespective of the socio-economic implications on the poor and marginalised. Though nobody denies the government's failure with the age-old electricity boards, doing away with the boards, withdrawing government expenditure from the power sector, and inviting private players is not the solution. These institutions could have provided funding to the government on condition that the electricity boards were restructured to make them more financially viable and able to provide affordable electricity to disadvantaged groups. Instead, they are forcing the government to side-step its commitment towards helping the socially and economically weak sections of Indian society.
During the 1990s, a number of state governments borrowed from the World Bank and the ADB (through the Union government) in order to revamp their respective state electricity boards (SEBs). While lending money to restore the SEBs, the World Bank and the ADB stipulated certain conditions in the loan document: restructuring and privatisation of SEBs, and the setting up of independent regulatory bodies and state-owned corporate firms. Policies and legislation had to be passed in the legislature and be reflected in the budget speeches of the state governments. In the mid-'90s, USAID sponsored a report entitled ‘The Role of Planning in India's Restructured Power Sector', which identified three critical areas for shaping and restructuring state-run power institutions. These were: (a) reconstituted independent organisations, (b) integrated power utilities to be partially or fully separated into generation, transmission and distribution entities (unbundled functions), and (c) commercial and profit-motive private-owned utilities to provide for growth. This report, prepared by US consultants, forms the basis for reform of the SEBs. India's ministry of power has endorsed the management model evolved from the study -- a model that speaks of privatisation, profit-making and limiting government involvement in the power sector. These have been set as pre-conditions for SEBs to avail of funds from the World Bank and the ADB. The Madhya Pradesh experience The above pre-conditions have been translated into policies, and the borrower state governments have adopted the managerial model proposed by the financial institutions. Madhya Pradesh is a good example of what these reforms have done for the ordinary citizen. Through the Government of India, Madhya Pradesh took a loan of $ 250 million from the ADB in 1999 to restructure 14 public sector enterprises in the state. “Restructuring” really meant implementing the ADB's agenda for privatisation, public-private partnership and closure of non-performing units, rendering over 16,000 workers jobless. In 2000, Madhya Pradesh took another loan of $ 350 million to reform its power sector. One would have expected these reforms to have made electricity cheaper, more reliable and efficient. And increased poor people's accessibility to power in Madhya Pradesh. Not so. The SEB disconnected thousands of single-point connections, generally used by poor consumers under the subsidised electricity regime. The government cancelled single-point facilities in the name of enforcing fiscal discipline and curbing financial losses. The private sector has all but taken control of the power sector from the government. Tariff hikes in 2001 and 2002 resulted in the disconnection of around 600,000 agricultural connections -- almost half of all agricultural connections in the state. A major reason for the Congress government's rout in the 2003 assembly elections can be ascribed to public anger against the government's electricity policy.
The Electricity Act, 2003 The Electricity Act 2003 is largely an outcome of pro-reform thinking. The act was passed in both houses of parliament without any serious discussion on the implications of various provisions for different consumer categories. There was also no debate over the structure, tariff and control of the power sector. The act mandates the creation of various power regulatory committees at the national, regional and state levels to regulate tariff, generation, transmission and distribution. These committees, along with the Central Electricity Authority, will act as nodal organisations. The act has opened up a range of opportunities for restructuring of the power sector, which will be shaped by the actions of major players like the regulatory committees and big private power companies. But it has caused uncertainty about important issues like tariffs for the poor, regulation of private companies and competition. The act also makes it mandatory for all SEBs to unbundle into separate generation, transmission and distribution entities, to make them more efficient than vertically integrated utilities. Overall, the act calls for contentious structural changes and requires the central government and the regulators to formulate appropriate policies to safeguard the values of liberalisation. The present UPA government, under its Common Minimum Programme, has promised to review the Electricity Act of 2003. We can only wait and see what it can deliver to the public that voted it to power. The National Electricity Policy Apart from privatisation and competition, the electricity policy includes a number of ambitious plans. It promises electricity to every household in India by 2012; this includes both rural and urban households. It talks of rural electrification separately and puts forward a plan to electrify all rural homes. But these promises appear to be more rhetoric than achievable targets, if we look at the figures in the 2001 census. According to Census 2001, around 44% of Indian households still do not have electricity; we will have to almost double our electricity generation within the next seven years to achieve the target of providing electricity to every home. The policy also talks of removing or gradually reducing cross-subsidies; but this will inevitably result in increased tariffs and lead to a situation where only those who can pay for electricity will have it. Is this not a distortion of the definition of electricity in the policy document – that it is an essential requirement for all facets of our lives? The national policy document also argues for extending the ‘availability-based tariff policy' to the states by April 2006. This will hike electricity tariffs in states that experience acute shortages in power generation. Except for a few rhetorical promises, the National Electricity Policy has nothing much to offer domestic consumers and farmers who depend solely on subsidised power. It doesn't even acknowledge the fact that electricity is one of the most crucial inputs in agricultural production. It's not too late… Electricity is a basic need and the government has an obligation to provide affordable electricity to poor households and consumers in rural and remote areas. But with the new system of governance, driven by market orientation, the government appears to be bent on withdrawing from its commitment to provide affordable power to every consumer. Both the Electricity Act and the National Electricity Policy have failed to address the concerns of marginalised sections of this country. Before finalising the National Tariff Policy, the government must identify those consumer categories that deserve subsidies and fix a rate at which they will be supplied electricity by both public and private electricity distribution companies. Also, the government should realise that unbundling and privatising SEBs will not improve performance in the power sector. Privatised distribution companies have not yet shown any significant results over public distribution companies in India. The experiences of Orissa, Madhya Pradesh and Delhi should be a wake-up call to the rest of the country. (Deepak L Xavier is a research associate at the Centre for Budget and Governance Accountability, New Delhi) InfoChange News & Features, July 2005
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