Deepening Power Crisis

Voice of Electricity Workers

July - September 2001

Deepening Power Crisis - BS Meal

With the advent of new economic policy, a new power policy was initiated on 23^rd October 1991. Power Sector was opened for private investment particularly, in generation overriding the earlier power policy, which envisaged supplementary generation through private sector to meet the shortage in overall generation requirement. IPPs were given 16 % ROR on equity, guarantee and counter guarantee by state and central government respectively besides many concession in taxes. Barring few cases, IPP were unwilling to sink in investments in view of the poor financial health of SEBs. Then after a couple of years power sector reforms were routed for advance via one time 12,000 MW through Naphtha, mega power projects, creation of power trading corporations, privatisation of cities more than half million population escrows facilities and putting in place independent regulators. But all in vain. Changes and reforms were initiated and pursued first in state of State of Orissa with the objective of introducing competition on the most classic example of unbundling and regulatory commission in United Kingdom.

After more than a couple of years with new power policy, the policy planners stated that the reforms have been initiated from other end (wrong end) i.e., in generation instead of distribution. Therefore, as a corrective measure many State Governments were forced to dismantle their SEBs leading to unbundling into generation, transmission and distribution regulator put in place to privatize distribution. In Orissa unbundling was done w.e.f 1^st April 1996 and distribution was privatized in three out of four zones in the year 1997 with BSES and the remaining central zone Cesco with American Electric Supply Corporation in August 1998. Although reforms in Orissa appeared heading for failure right from the beginning but the GOI and government of Orissa tried to focus a rosy picture. Presently Gridco the off taker of power generated at AES plant owes it around $45 million and is attempting to link payment for AES generator power to payments owed by Cesco to Gridco and as a sequel of it AES disconnected power from its IB Valley unit forcing blackouts in the third week of May under the protests that these are two separate business. Power was resumed when Orissa government issued a notification under ESMA against CEO of AES Mr. Bakke. The regulatory commission has placed an order asking Cesco to put all receivables into an escrow account. In order to pay wages to the employees, Cesco had to break the Escrow in each of past three months to avoid criminal proceedings initiated against the Managing Director by employees for nonpayment of salaries by 10^th of every month. In response to the commission’s order AES has decided to deposit all the revenues in Escrow. As a result around 8500 employees of Cesco would not get their salary due on July 31, 2001 and thereafter. The ugly face of reforms came to forefront when the power supply dislocated in 833 villages in the state of Orissa due to super cyclone in the year 1999 could not be restored in many hundred villages till now.

The Enron’s Dhabol Power Company’s dispute with the Maharastra State Government over cost of power which further precipitated in Enron went ahead for arbitration proceedings whereas government of Maharastra stopped taking power supply from Enron and declaring PPA void. The Godbole Review Committee came out with a recommendation that besides renegotiation, a judicial enquiry with the Supreme Court judge be held to enquire into undue influence made at every stage of decision-making process in PPA between MSEB and Dhabol Power Company. The rates charged by DPC skyrocketed to the extent of Rs. 8.08 per unit at the face of NTPC and Tata Power available at the rate of Rs. 1.50 per unit and Rs. 1.80 per unit respectively.

The Government of India in the year 2000 came out with a draft Electricity Bill - 2000 to replace all the existing Electricity Acts with it. The Centre through this Bill is attempting to loosen the SEBs grip on the power sector. The draft has been amended 8 times and now under a further amendment pertaining to allow independent power producers to sell electricity directly to consumers and to make the theft of electricity illegal and punishable as hard as possible before introducing the Bill in parliament.

The Chief Minister’s conference was convened by the Prime Minister on 3^rd March 2001, where it was admitted squarely by the Energy Minister that power policy has failed and in dire straits. A high level committee has been setup by Government of India headed by Planning Commission member Mr.Montek Singh Ahluwalia,as Chairman which also includes as members, the chief of three financial institutions IDFC, ICICI and SBI caps namely Deepak Parikh, K.V. Kamath and Birendra Kumar and senior officials from power and finance to formulate a power policy perspective to be placed before a sub-committee constituted of Chief Ministers of nine states to finalize. It is surprising to mention here that this committee does not have any technocrat serving or retired on its Board from Central or State Power sector and obviously, till date the first part of the report which has come out pertaining to onetime waival of SEBs dues to be paid to central power utilities, Department of Railway and Coal by way of security bonds to be issued by the state govenrments. This in itself is ridiculous because of inadequate tariff, the SEBs dues will surmount again in a couple of years to the present level. But the sub committee could not decide the issue, because states wants centre to bear more burden on account of nonpayment by NTC to SEBs. So far second part of Report of the committee is concerned, it is yet to see the light of the day and therefore as a matter of fact no power policy exists today and the power sector is in big crisis. Meanwhile the Enron and AES as well as government of USA through its representatives Rocca recently in India had started mounting pressure on Government of India to resolve Enron crisis in a reasonable way, which alone will be an indicator of confidence of foreign investors.

Now, Draft Electricity Bill 200 envisages IPPs can sell power directly to the consumers, which will make corporisation/companies to loose their potential buyers and the provision to allow captive power rule will make them financially unviable and insolvent. The centre is now offering errant states a bunch of solutions to choose from along with some financial carrots to make the package attractive. The news is the states seem serious this time round. The bad news is intent is not enough to turn SEBs around. In a major shift from the earlier trend, new distribution models are being evolved as well. “It is no longer necessary to just unbundle”. In the name of accelerated power development programmes 16 states have been forced to sign MOU reforms with the centre.

There is a contradiction between the economic aspirations of consumers (lower prices) and power developers (High Profits) and how can it be balanced against the reliability expectations. In other words how low can the prices go before the light start flickering off too often? Now AES and Enron recently threatening to walk out from power sector and private investment under the circumstances is still being distant possibility, the power policy has not only miserably failed but collapsed leading into slippage of power generation plan targets to the extent of 46.3 and 42.9 % in the eighth and ninth plan and thus the country is pushed towards de-industrilaization and de-electrification due to power cost rising exorbitantly high say from Rs.1.09 per unit in the year 1991 to Rs. 3.04 per unit in the year 2000 i.e. in the regime of new power policy.

As regards privatisation our country lacks experienced institutions to take on the challenges of owning and operating the power sector. Our experience in this regard in last few years has been dismissal. Against this background it would be worthwhile to consider the situation which demand that the Electricity Employees and Engineers should ponder and bring an alternate power policy within the existing structure of SEBs and Electricity laws by introducing financial reforms and to redress the problems of losses, theft, customer services, fuel policy and economic equipment purchases to make SEBs economically independent and financially viable. The Electricity Employees and Engineers shall not restrict only to focus this alternative power policy but should intervene through resolute action to see that government is forced to retrace the steps and bring a self-reliant power policy with the least cost power route involving the Electricity Employees and Engineers in policy formulations.

This is an immediate patriotic task.


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