VOICE
OF ELECTRICITY WORKERS
Oct-Dec 2001
Vol 2 No.4 Index
THE POWER SECTOR REFORMS - A DECADES EXPERIENCE
E.Balanandan
1. The power sector reforms initiated during 90’s based on world
Bank, If prescriptions with the stated objective of achieving
economies in power supply and faster development by privatizing and
introducing competition failed miserably inspire of the plethora of
steps taken by the government to attract independent power producers
Indian and foreign. The increase in return on equity to 16% from 11%
and the rate of depreciation raising to 8.24% from 3.5%, besides tax
holidays guarantees and counter guarantees, Escrow, accounts beside
the change in electricity laws in order to provide Electricity
Regulatory Commission etc did not have the desired effects.
2. Many companies came forward to take up big projects in
different parts of the country and signed MOUs with the government
including many fast track ones after the announcement of the said
concession. However, facts goes to show that many of them failed to
complete the formalities and disappeared from the scene. Those of
which were completed the cost per unit of power were prohibitably
high. The Enron of Maharashtra was one among them needs no
elaboration. The failure of private sector to complete the projects
as promised resulted in drastic slippage in the eighth five-year
plan. The target was 30,538 MW and the achievement only 16,422.5 MW.
The slippage 46.3%. In the ninth plan too the story is not
different. Out of the target of 40,245 MW as per the revised
estimate the achievement will be about 21,000 MW and the slippage
48%.
3. The Prime Minister himself has gone on record while
inaugurating the Chief Ministers’ conference on 3rd March 2001 that
“the performance of the private sector during the last decade was
dismal, they could produce only 5000 MW” and “in the initial phase
of reforms in the power sector, we have adopted an approach of
guaranteed return to the private producers. This made the tariff
unacceptably high”. He has admitted two things that relying on the
private sector for power development did not succeed and secondly in
many case the private power producers cost was unaffordable. However
he failed to consider the serious economic impact of nearly 50%
slippage (14116+ 19245 MW) in power production did not bother to
take corrective measures by increasing public funding for power
development instead he was hell bent on proceeding with the world
bank dictated power sector privatization.
4. It was insisted that the Orissa model is an exemplary one for
power sector reforms and that everybody should copy this model. The
Orissa Government trifurcated the State Electricity Boards into
three segments generation, transmission and distribution in 1996 and
subsequently the distribution segment was separated into four zones
of which one was awarded to Cesco the US Power giant AES and the
remaining three zones of BSES.
5. The model has been copied by Haryana, Andhra Pradesh, Uttar
Pradesh, Karnataka and Rajasthan and they have started taking
measurers to separate generation, transmission and distributions.
The privatization process is also being pushed through.
6. During the span of the last five years the Orissa State
Electricity regulatory commission hiked power rates five times,
which resulted in three fold rise in the power rates. In spite of
some improvement in T&D losses and revenue collections the
distribution companies CESCO, AES and others failed to pay more than
Rs.1,500 crores to Grid Co the Government own transmission company
for the cost of power though these companies collected money from
the consumers at increased rates. In turn the transmission company
failed to pay the OPGC the private generating company in which AES
the American power giant, is a major stakeholder about Rs.400 crores
for the cost of power they have taken.
7. Consequently the Orissa Power generating company (AES)
threatened denial of power supply to the Grid Co and thus created a
situation that of a complete power blackout in the state of Orissa.
To counter this the government of Orissa decided to use ESMA against
OPGC. Thus a very serious power crisis engulfed the state.
8. Simultaneously a reign of terror has been let loose against
employees and engineers flouting all the legal provisions and agreed
norms including trade union rights. The distribution companies
failed to deposit the PF deductions amounting to crores of rupees.
LIC premium withheld, pension funds misused, denial of LTC, leave
surrender, increments; the promotions policy given up. 50% increase
in work pressure reducing the complement of the workforce, besides
victimization, suspensions and dismissal. Above all, denial of
salaries in time.
9. This forced employees including engineers’ collectively started
agitation against the company, which forced Government of Orissa to
approach the Electricity Regulatory Commission’s intervention. The
Commission ordered removal AES from the management of CESCO and an
IAS officer to take charge of the company. Ordered the payment of
dues to workers and engineers. Thus the big American Power Company
AES is forced out of the management of CESCO.
10. Without further elaboration let me quote the official high
power committee headed by Mr.Mantek Singh Ahluvaliya……“After five
years of experience of power sector reforms in Orissa, losses of the
privatized distribution companies in the State have crossed Rs.
Thousand crores and net worth of these companies is negative and
their ability to borrow in the market for capital investment has
been eroded however, they continued to have access to the state
government loans provided by the world bank. Further the state owned
transmission company, Gridco, which is also the monopoly buyer of
power generated in the State, is unable to recover dues from the
private distribution companies and is carrying accumulated
losses/receivables exceeding Rs. 1,500 crores. System in Orissa
seemed to be facing impending bankruptcy and the quality of supply
has not improved materially and there has been little new
investment.” This is the story of the sad demise of the Orissa
model, narrated by its own architects and promoters. However the
people of Orissa had to pay three fold for the power they consumed.
No improvement in power supply. The 800 villages flooded before two
years did not get the power system restored. Besides the total
negative impact on the development of the state.
11. All those SEB’s copied Orissa model hiked power rates twice or
thrice within this period invoked people resentment in a big way in
different areas.
12. The greater Noida experience is also quite the same. The UP
electricity board privatize the greater Noida power distribution
system which was taken over by the Noida power company. The U.P
electricity board charged them 1.40 paise per unit approximately 50%
of the prevailing rate they charged 2 rupees to the consumers and
collected dues accordingly. While the company failed to make
payments to the electricity board and the outstanding today is more
than 150 crores.
13. The experience of Enron (DPC) Maharashtra needs no elaboration
since now the issues are very much in public knowledge. The Enron
the US multi national giant got the power purchase agreement signed
by the men at the top dealing with power in Maharashtra in
connivance with those high ups in New Delhi spending more than 60
crores disclosed till now for ‘educating’ – rather greasing them.
The objection raised by many including the trade unions were over
ruled by the Government and the judiciary including the Supreme
Court. However when the experience of rupees 8 plus per unit of
current supplied by DPC literally had a rude shock for everyone of
them. Maharashtra Electricity Board, Maharashtra Govt, and Govt at
the Centre. MSEB finally forced to say that they are not able to
consume Enron power since the rate is unaffordable and thus power
generation DPC (Enron)come to an end.
14. Now the Enron company through the US government authorities
are pressurising government of India to bear the burden of Enron
with the threat that US will dissociate in industrial ventures in
India. One cannot definitely says
Mr. Vajpayee government will submit to US pressures by forsaking
our national interest.
15. The latest in the Electricity reforms is the attempt of the
govt of India to implement the expert committee’s report headed by
Shri. Montek Singh Ahluvaliya which is supposed to be intended for
bailing out the electricity board from the deep debt liability which
is estimated being 25000 crores principal and 15,000 crores interest
charges. The suggestions made is that 50% of the accumulated
interest plus the principal about 35,000 crores will be converted
into tax free bonds after waving 50% of accumulated interest. The
repayment of bonds will begin after five years in installments to be
cleared within fifteen years, on condition that the states should
undertake reforms in the power sector.
16. The increase in the liability of electricity boards was due to
the increase in the power rates by the central utilities and private
power operators. The cause for this hike was also attributable to
the reform policies like the raising of depreciation rates and the
increase in investment returns besides the escalation of the fuel
costs. However the bail out program is based on the privatisation on
the power sector. This again will lead to increase in power rates.
It is interesting to note that the India’s power rates was almost
lowest in the world during 1991 Rs1.09 and by 2000 it went up to Rs
3.04 which is above the world standard which means our competitive
efficiency is dwindling .
17. Unmindful of this the govt of India is taking steps to make a
comprehensive legal frame work to privitising the power sector for
which the electricity bill 2001 is introduced in Lok Sabha on 29th
August 2001. The crux of the objectives as stated in the bill is
quoted below:
“ With the policy of encouraging private sector participation in
generation transmission and distribution and the objective of
distancing the regulatory responsibilities from the Government to
the Regulatory Commission……..Accordingly it became necessary to
enact a new legislation for regulating the electricity supply
industry in the country which would replace the existing laws,
preserve its core features other than those relating to the
mandatory existence of the State Electricity Board and the
responsibilities of the State Government and the State Electricity
Board with respect to regulating licensees. There is also need to
provide for newer concept like power trading and open access………”
The above shows that the govt. of India is out to privatize the
whole power industry by transferring the enormous public wealth
created in the Indian power sector is sought to be given to the
private companies Indian and foreign for nominal costs. The
privatization will only increase the power rates to unaffordable
levels since the private capitalists are only interested to make
maximum profit. If this vital infrastructure facility is taken over
by the profit hunters the peoples interest of power at affordable
rates will be the first causality and above all the nations
competitive efficiency will seriously be weakened.
The international experience too shows beyond doubt that the
private operators domination in the power sector is dangerous.
Caliphornia (USA) which has come in to focus during January this
year gives a graphic lesson. Without elaborating I shall give some
excerpters from the speech made by The California Governer Grey
Devis on 8th January 2000.
“……..But we must face reality California’s deregulation scheme is
a colossal and dangerous failure . It has not lowered consumer
prices it has not increased supply. In fact, it has resulted in
skyrocketing prices, price gouging and an unreliable supply of
electricity. In short, an energy nightmare.’’
“The out-of-state generators who bought most of our utility’s
power plants are now charging California several hundred percent
more for wholesale electricity than we paid just one year ago.”
“Worst of all, there’s evidence that some generators maybe
withholding electricity from the California grid to create
artificial scarcity, which in turn, drives up the price
astronomically.
My friends, electricity is not an exotic commodity like pork
bellies, to be traded in the chaotic equivalent of a future market;
electricity is a basic necessity of life. It is the very fuel that
powers our high tech economy”
18. After this the Govt of California has taken many measures to
impose cap on whole sale our rates and taken steps to take over
private power utilities and steps to govt control over the power
industry. Now this is spreading to other states too. It has become a
big debating point in the Unites States.
19. In short the policy of privatization being perused by the govt
is absolutely wrong and hence those who are interested in the
countries progress must unitedly oppose it.
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