SUMMER months in a tropical country such as India can be quite harrowing, with the mercury soaring to uncomfortable levels. But the delayed onset of the monsoons and a perennially precarious power situation, with rampant cuts and breakdowns, can make life miserable for millions of Indians.

The summer of 2012 has been an exceptionally trying period, partly because of the vagaries of nature – which has resulted in an unusually late onset of the south-west monsoon – but mainly because of bungling by both the federal and state governments on the power front. Power cuts in cities range from four to eight hours and in many rural areas power is available for only between four and eight hours.

Most parts of the national capital, except the posh Lutyens bungalow zone – housing the homes of politicians and top bureaucrats – are reeling under power cuts. Similarly, vast swathes of the sub-continent also suffer from massive cuts that are adversely affecting industrial and agricultural production. In Uttar Pradesh, India’s largest state, the government recently ordered shopping malls and busy commercial areas to pull down the shutters to save electricity. It was only after a back-lash by traders that the government agreed to restore supplies.

The more enterprising among the traders now routinely install diesel-powered generating sets outside their shops, which besides causing a lot of noise and generating smoke and worsening pollution, also adds to the government’s fuel subsidy burden and widens India’s current account deficit.

The diesel that fuels their generators is heavily subsidised by the government and has to be imported in huge quantities, resulting in pressures on the Indian rupee, which has depreciated by more than 25 per cent over the past one year.

For a country whose economy has been growing at rates of nine to 9.5 per cent – and only now fallen to 6.5 per cent – India’s hunger for power is enormous. The electricity sector should have been one of the most buoyant, attracting both domestic and international investors, and leading to increased economic growth.

Unfortunately, politicians in India have made a mess of the power sector and refuse to initiate reforms. Come election time, most political parties now come out with standard offers of free electricity to farmers, a write-off of previous bills, and other gimmicks that destroy value in the power sector. Such policies also discourage investors, leading to perennial shortages of power.

*****

PEAK demand for power in India is currently around 217,000 MW, but generation capacities are less than 200,000 MW. A substantial quantity of power that is generated is also not supplied to consumers, as it is ‘lost,’ or ‘stolen’ during transmission.

Lack of reforms in the power sector means that most state-owned power utilities do not have the funds to invest in new technologies that can result in savings. Electricity is a concurrent subject according to the Indian constitution, in which both the federal and state governments have a role to play. The federal government has been pushing states to initiate reforms, especially after it enacted the Electricity Act 2003.

However, it cannot force states to bring about reforms; the centre has, therefore, been focusing on providing financial incentives to state governments. ‘Reform your power sector and get more funds, else you be will deprived of incentives,’ the federal government tells the states. The reforms that it wants are minimal: set up independent regulators, who will decide on tariffs, unbundle the utilities and revise tariffs on a regular basis.

Traditionally, India’s state-owned electricity boards would generate electricity, transmit them across long distances and even distribute it to consumers. After the reforms were introduced, state governments were told to set up three different companies for generation, transmission and distribution, and to start charging realistic tarriffs to consumers. They were also told to corporatise the boards so that they could operate as modern commercial entities.

Many state governments refused to bring about these changes, as local politicians were loathe to give up control over the utilities. A few did initiate changes, unbundling their boards into three separate profit centres and undertaking extensive reforms. In the past, many boards did not even have details as to their total subscriber base; they would rarely if ever send bills to consumers, or even set up meters to gauge their consumption.

The financial incentives that the centre offered to the reformers saw many state governments initiate superficial changes. State governments now encourage private sector players to set up generating units, but they are still reluctant to open up transmission and distribution to the private companies. Most of the so-called independent regulators are also former bureaucrats, many still wanting to exercise control over corporate entities.

So there are many disputes relating to the hike in power tariffs, with the regulators finally succumbing to political pressures.
Power tariffs are largely untouched for fear of alienating consumers, even though the cost of inputs – including coal and diesel – have soared. In the absence of any increase in tariffs, state-owned utilities do not opt to buy electricity from the open market, where they are traded on exchanges.

They prefer to impose power cuts – and consumers apparently do not mind suffering through these cuts – instead of ensuring uninterrupted supplies through the day. And with virtually no buyers in the open market, independent power producers are disenchanted and do not invest money in expanding capacities.

*****

“THE southern region is facing power cuts of 8-16 hours and many rural areas are going without electricity for days together,” notes Ashok Khurana, director-general, Association of Power Producers. “The way forward is resolving regulatory and policy issues in the sector.”

The government has virtually stopped promising ‘power-for-all’ as millions of Indians still do not have access to electricity. The power ministry, headed by an uninspiring politician – Sushil Kumar Shinde, a former chief minister of Maharashtra – with a pathetic track-record in pursuing reforms, is unable to stick to its commitments or meeting targets.

Prime minister Manmohan Singh is unable to sack him and bring in a younger and dynamic power minister because of politics within the ruling Congress party. The result: power targets are frequently being revised downwards, and electricity shortage continues to cripple the country.

The power ministry also blames the coal ministry for the shortage of coal, which fires nearly two-thirds of India’s power plants.
Ironically, though the country is facing an acute power crisis, almost a fifth of the power plants are forced to shut down operations at present because of coal shortage.

State-owned Coal India Ltd, one of the world’s largest miners, is unable to meet the demand of the power sector. Its production has stagnated at levels of 440 million tonnes of coal annually, though demand has soared to 650 million tonnes. The gap has to be met through imports of costly coal, which again results in heavy losses for utilities, who cannot hike tariffs.

India’s coal demand is projected to top the billion-tonne mark by 2017, but Coal India in no position to meet this soaring demand. Estimates are that India will have to import 300 million tonnes of coal annually to meet the needs of the power sector.

Many of the independent power producers had complained to the prime minister about erratic coal supplies that had led to reduced power production. Manmohan Singh, the prime minister, had in April directed Coal India to sign agreements with power producers, promising to meet 80 per cent of their demand.

However, after resistance from the company, the prime minister’s office last week agreed to scale down the minimum commitment to 65 per cent of their demand. But such temporary arrangements are unlikely to help India boost its power production capacity in the near future. That would require a deeper commitment to reform, not just at the central level, but even from the states, where most politicians continue to treat electricity as a carrot that they can dangle before the electorate to win their votes.