Former Andhra Pradesh Chief Minister Chandrababu Naidu: One of the few to promote power reforms

Battling legacy issues that have crippled the viability of a business is not an easy task. Especially, if the enemy lies within. The state power distribution utilities were given a one-way ticket to bankruptcy more than two decades ago, when politicians began using them as a tool to deliver populist measures like free power. Then came the state power regulators, notably, the Andhra Pradesh regulator, who raised the average tariff by as much as 15 per cent. All hell broke loose thereafter. The message was clear: Tariff hike is only one of the pillars of reforms, and that it must go hand in hand with other measures to reduce losses, including theft. Otherwise, it would mean that the law-abiding consumers continue to further subsidise the errant ones. It also reflected the inability of the political class in the states to capture the significance of the regulatory institution in the initial years. Regulators have since then learnt to adopt a soft-landing approach that is palatable to the common man.

Tariff hikes have since taken place, but not without creating 'regulatory assets', which are deferred consumer liabilities that otherwise would translate into immediate hikes. Such assets have been extinguished over time. But the fact remains that the loss reduction targets set by the regulator for the utilities are soft. The pace of reduction in cross subsidy between consumers needs to be hastened. Evidently, there is more that the regulators can do to accelerate reforms.

Innovations are critical to tide over the prevailing shortages, since generation projects have a three to four year gestation period, while developing a coalmine takes a little over four years. For example, in Pune, in order to deal with the power shortages, consumers who bill more than 400 units per month have got together to utilise the spare capacity of generation sets that the industry around the city uses on an exclusive basis (captive capacity). These sets operate on liquid fuel, where power generation costs upwards of Rs 7 per unit, more than double the state's supply price. However, on a pooled basis, the tariff hike is around 35 paise per unit, since the units will crank up only during power cuts.

While external interventions can drive state reforms, it can only do so up to a point. It is clearly the political class at the state level that can drive reforms the best. The first step in that direction is to desist from competitive populism-parties vying with each other to offer free power to consumers, only to roll it back a few months after elections. This happened in Maharashtra a few months ago, when the Congress followed BJP's election pitch of providing free power to farmers. Another vexed issue that vastly drags down the pace of reforms is the poliltical patronage that existing power utility employees enjoy. In fact, a recent state-sponsored study in West Bengal revealed that around 80 per cent of employees are not graduates.

Agreed, excess low-cost manpower is a reality in the context of Indian polity. However, a change of environment can make the difference. For instance, a significant number of employees in the National Highways Authority of India are drawn from the ranks of state public works department, which in several states is seen as a hotbed of corruption and inefficiency. However, personnel drawn from this pool are now driving an ambitious highway programme. Unfortunately, the power sector does not enjoy an institution-driven reform programme. Time, we got one.

But, more importantly, the need of the hour is a genuine political consensus on power sector reforms.