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Press release dated 09-10-2002
9.10.2002
To
The Hon’ble Minister
of Labour,
Ministry of Labour,
Govt. of India,
New Delhi.
Sub: Tripartite Meeting of Industrial Tripartite Committee
on Electricity Generation & Distribution
Ref: (1). Ministry of labour
Director’s letter No. D.O.No.L- 51013/6/2000-IR (PG) dated 1st
October, 2002
(2)
General Secretary (CITU)’s letter dated 5th
October, 2002 addressed to Dr. P.D.
Shenoy, Secretary (GOI), Ministry of labour
Sir,
Kindly find enclosed herewith
a note on the issues we would like to highlight in the meeting of the
industrial tripartite committee on Electricity Generation & Distribution under
the Chairmanship of the Hon’ble Labour Minister on 11.10.2002 at 11.00 AM at
Shramshakti Bhavan, New Delhi.
Thanking you,
Yours sincerely,
(B.S. MEEL)
General Secretary
Electricity Employees
Federation of India
6, Talkatora Road, New
Delhi-110 001.
ELECTRICITY
EMPLOYEES FEDERATION OF INDIA
6, TALKATORA ROAD,
NEW DELHI – 110 001.
Tel: 3753149, E-
mail
eefi@eth.net/
info@eefi.org TeleFax: 3317141
Web site:
www.eefi.org
B.S. MEEL, GENERAL SECRETARY
NOTE ON
THE ISSUES REGARDING ELECTRICITY GENERATION AND DISTRIBUTION BEFORE
INDUSTRIAL TRIPARTITE COMMITTEE ON DATED 11.10.2002
At outset I would thank you for
having invited our organisation in the Industrial Tripartite Committee Meeting
on Electricity Generation & Distribution being held after two years as against
the last meeting of the committee held in November 2000 after almost a decade.
This is a step in right direction which will provide us an opportunity to
interact on the deepening crisis in the power sector. We reiterate our earlier
basic contention that tripartite committee should be reconstituted reckoning
the membership of different central trade unions in the industry in case of
industrial tripartite committee with allocation of seats on the basis of
membership.
EMPHASISE THE IMPORTANCE OF ELECTRICITY:
As a man has a right to life,
similarly electricity should be within the reach of every family irrespective
of whatever may be the income of the family, because the path of the
development routes through the electricity.
If you go to any village and ask,
“What do you want here?” What would change life in this village more than
anything else”. And response you often receive is “we need energy to light
our homes and classrooms, to pump water, to make cooking, to power our small
workshops, to listen to radios, to learn on computers and gain access to
internet, to refrigerate medicines and vaccines in our hospitals and of course
for grinding wheat and rice.” One of the principal ways that electricity can
help transform rural economies is by powering irrigation.
To emphasise the importance of
electricity in supporting economic growth, “the bottom line is that we cannot
attack poverty, improve food security, and build economic opportunities in
poor countries without more electricity. The Indian economy, especially
agriculture depends heavily on electricity.
A secure supply of electricity at
an affordable price is not only a social benefit, it is a vital element in
economic development. The supply of electricity has been accepted as a basic
minimum service. Lest we forget, many hundred people in India are still do
not have any access to electricity, however unreliable. At the same time
science and technology which are developed very fast, are diverted and
merchandised for financial profits alone. This trend can only lead to violence
of all sorts throughout the country.
PRIVATISATION
OF ELECTRICITY:
The
essence of new power policy for more than a decade is privatisation, The
Electricity Supply Act 1948 was amended in 1991 to provide a legal framework
for facilitating private investment, the intended objective being to increased
efficiency, providing quality power and lowering of power costs through mode
of competition and better service to the consumers. Electricity is a unique
commodity- if indeed it can be called a commodity-and electricity is like no
other commodity as it cannot be stored in any meaningful amounts and
electricity demand is highly dependent on the whether. Deregulation in power
sector will not follow the paths of other restructuring industries either in
India or abroad, the Orissa and Californian power crisis is a case in sight.
Many rules that apply in markets break down in electricity markets as it
follows the rules of physics and not those of various jurisdictions or
marketers. Also powerful inelastic demand quality of electricity governs
consumer behavior- there just are no viable substitutes for it. The industry
structure largely provides no real-time means to adjust consumer demand based
on price. Electricity prices can exhibit extremely volatility at times because
of the above qualities and transmission availability can restrict power flows.
Few commodities can incite the heated national, regional, and local debates
that electricity restructuring seems to inspire.
Electricity has another unique
characteristic that complicates restructuring – coordination. At all times,
aggregate supply and demand must operate in equilibrium - a system cannot
generate more or less electricity than demand but the coordination function is
not something left to the markets. Reliability is a catch. A key component
of reliability is transmission. In USA it has been observed instances where
transmission congestion causes the price of power inside one region to be
higher than surrounding region at the same time.
DECADES LIBERALISATION
EXPERIENCE:
The World
Bank sponsored new power policy introduced in October 1991 a short-term
strategies to attract private investment for resource mobilisation, the
decades experience is totally dismal. During the decade generation capacity
addition targets slipped more than 50% and power costs increased from Rs. 1.09
in March’92 to Rs. 3.50 in March’2002, thus failed to address black-outs and
brown-outs (continuity –value is higher than the cost of power). The cost of
doing nothing is greater than the cost of doing something. Inspite of all
noble ideas this policy is going to be a total failure due to 113% hike in
power purchase costs, the 50% increase in average retail tariffs across all
SEBs witnessed over the past four years. The average power purchase costs of
the Boards that is the cost at which SEB purchases power from the grid has
shot up from Rs.0.87 a unit to Rs.1.85 per unit between 1997-98 and 2001-02
mainly following upward revision of tariffs of central power generation and
transmission utilities. The increase in total costs structure is more
pronounced in case of SEBs which are over reliant on power purchase from
central stations. The Enron-Orissa structures adopted during the decade have
put the power sector in dire-straits. The high-cost power (unaffordable) will
force people to resort to large scale thefts which is the real problem of the
power sector.
GOVT.
CARRYING FORWARD FAILURE OF POLICY OF ONE STAGE TO ANOTHER STAGE:
Taking lesson from aforesaid
bitter experience, it was thought that since SEBs are un-sustainable, the
legislative changes will streamline the enabling clauses in E(S) Act, 1948 to
user - in a climate of fresh investments to fund the further future plans of
SEBs. Instead of addressing these problems, Government of India insists on
World Bank sponsored Electricity Bill-2001 repealing basic social objective.
So called comprehensive legislation for power reforms had been introduced in a
cavalier manner without any serious cause and discussion. This is an untested
legislation and nobody believes it will help poor. Instead the burnt of
increase in commercial tariffs will be born by poor due to unplanned addition
of power plants with escalated costs and super profits of IPPs. Making
captive power free from licence will aid fuel to fire as industry will run
away from the grid and thus Agriculture and domestic consumers will have to
bear the cost of base power stations. Therefore, privatization of rural
supplies would be appropriate only if the supply costs would be lower than
those of the state entity would. Any government support to power sector will
have to be thus much more than present government support to SEBs. The
Electricity Bill-2001 envisages the responsibility of managing electricity to
rural areas left to villagers. This will set in a process of
de-electrification in rural India ruining our Agriculture and food security.
The existing 31% household electrification will dwindle. The new bill is
diversionary in nature and will result in confusion and further set back to
power programme. The crisis will cause large scale economic and social
unrest.
The focus of thrust in the Indian
power sector presently is on the distribution reforms, as it was increasingly
felt in the government that the actual melody lies in the financial weakness
of the SEBs. To make the distribution sector attractive, will also induce
private investment in generation. The power ministry has put in place a set of
milestones/conditions to which disbursement of funds under the accelerated
Power Development and reform Programme (APDRP) would be done for transitional
financing of reform steps undertaken by state governments. Four states bag
43% of power reforms funds against approved projects worth Rs.8484 crores for
the upgradation of power transmission distribution system in 63 select circles
which leads to an un-even development would be causing serious troubles. As
per the existing level of tariffs most states would need steep increases in
tariffs to achieve break-even point.
DEPOLITICISE POWER REFORMS AND
UNAFFORDABLE POWER RATES:
What the policy makers are hiding
from the people is that the current restructuring will push up the cost of
electricity even further. The issue that is of vital importance is the price
at which power is going to be delivered to the consumer. In India, this
objective currently finds little mention. Instead, the slogan advanced is ‘
costly power is better than no power’ or power at any cost is preferable to
shortages. It is this mindset that power has to be added whatever its cost
that has produced aberrations such as Enron and choosing the expensive
hydrocarbon route. Even worse, only lip service is paid to rural
electrification of providing electricity to every rural household.
Privatisation in no way solves the
structural problem of the electricity sector. The CERC and SERCs at the
central and state level have been set up for fixing tariffs and level
playing fields. The enthusiasts of promoting privatisation on the presumption
of raising efficiency and effective revenue realisation do not auger well with
our decades experience of privatisation in Orissa and Greater Noida. The
annual losses to the state-owned gridco are now higher than the earlier losses
of OSEB. This shows that the drain on the State exchequer does not stop
after privatisation. The high powered Soven Kanungo Committee report in Orissa
has estimated a package of Rs.3240 crores for further interim financing
without which there seems hardly any prospect of the reform coming to
fruition, otherwise it would have its inevitable adverse impact on reforms all
over the country. It should be noted that the government of Orissa has
complied with all the milestones prescribed by the World Bank ahead of
schedule. Only power consultants had made a killing. After March’99 , Gridco’s
liquidity very fast blockage of its funds with four distribution companies as
the total receivable with four distcos has been rs.1800 crores on 28.02.02
which was around 1100 crores on 31.03.01. No distribution company is in a
position to clear even running power purchase bill though six years have
passed away after reforms. The said reality is that the distcos cannot
liquidate these liability to Gridco as they pay around 60% of current billing,
then it is doubtful whether at all distcos can pay these dues ever. Distcos
issued bond to Gridco against these liabilities but it is doubtful whether
distcos can honour the commitment of bond since they don’t have money even to
pay running bill. Therefore the bond issued to Gridco by Distco seems to be a
piece of paper only.
All experts agree that the
average cost of power will first go up by 50 to 75% after privatisation,
before they can come down. It is clear that with the current level of
incomes, it will be impossible for large sections of the people to pay the
resulting costs of Rs.5 or 6 per unit for domestic and Rs. 3.00- 3.50 per unit
for agriculture. A number of countries have privatised their electricity
sector and the governments have had to provide subsidies for the poorer
sections in response to popular protests. Such subsidies, along with the
repayment for the proposed bonds will ensure that the finances of the state
government sink completely.
Those arguing for reforms are
committing for a fraud on the people by not clarifying that the Government now
does not consider that it has any social obligations in the sector. The
privatisation proposals and the electricity bill being introduced is thus a
complete re-orientation of the sector away from its earlier objectives. In the
Chief Ministers’ conference on 3rd March, 2001 it was agreed that
there is urgent need to “depoliticise” Power Sector Reforms i.e. one who
consumes should pay for it.
INTERNATIONAL EXPERIENCE:
Commenting on Californian crisis
Dr. Mark N. Cooper, Director Research, Consumer Federation of America in his
analysis of the restructured US electricity industry argues “inflexibility of
supply and demand are basic conditions that render the electricity market
volatile and vulnerable to abuse.”
Short-term supply responses are
constrained because of the difficulty of storing electricity
Significant additions to supply
still require substantial lead times.
The condition of an integrated,
real-time net-work has broken down because competition reduces the incentive
for market participants to cooperate and makes it difficult for system
operators to manage the electricity grid.
Provision of reserve margins is
uncertain in a competitive market, since no one has an interest in building
excess capacity, suggesting that these markets may remain tight.”
Sold as a way to bring choice and
lower utility bills, power deregulation is now about as welcome as drought, at
least in the west.
· In
Britain the largest electricity generators on the brink of collapse. British
energy, which provides 25 percent of the nation’s power, is warning of risked
insolvency. On the other side of the Atlantic there is a move to
renationalise the generating plants sold to the PPL Corporation of Allentown,
Pa and Portland, Ore., meanwhile, is moving ahead with a plan to acquire,
perhaps through condemnation, Portland General Electric; a utility owned by
the bankrupt Enron Corporation.
Widely different structures have
been adopted for electricity markets in different regions. It seems fair to
say that none of these structures offers completely satisfactory answers to
the following questions.
How can the economic aspirations
of consumers (lower prices ) and suppliers (high profits) be balanced against
the reliability expectations of these same consumers? In other words, how low
can the prices go before the lights start flickering off too often?
how can the
transmission system be managed to promote fair and efficient markets?
·
How can an unbundled industry
structure deliver the reliability and quality of supply that customers want ?
Can such an industry structure provide different reliability and quality
levels depending on the needs of some customers or groups of customers?
·
Power system stability depends
on the state of the whole system and can be maintained in the face of
unpredictable events only through coordinated action by all parties . How
should standards be set, information exchanged, responsibilities shared, and
corrective actions taken to keep the probability of system collapse at an
acceptably low level without unduly hampering competition?
What lessons can we find in India
to learn from California’s example? The first and the most important one is
that there can be no free market in electricity when there are shortages.
Instead, we need to strengthen the grid, integrate the power systems better
and make the best use of our installed capacities. With this objective, we
outline below an alternate set of policies for the power sector in the
country.
The
Problems of the sector: An Alternative perspective
·
It is true that SEBs have problems
that require urgent attention. However, mindless privitisation, as is being
advocated today, will lead to a sharp rise in electricity prices without
reducing the losses of the state government. S.N. Roy, former chairman CEA,
has already warned of large-scale political instability due to continuing
steep rise of the electricity rates in the country. It is time that we looked
at the power sector reforms afresh without the ideological blinkers that
privatisation is the sole solution to the problems of the sector.
·
The problem of the power sector
stems from an inability to recover enough revenue from the sale of
electricity, leading to a financial crisis in the sector. Though there are
shortages in the sector, they are neither as high as predicted nor they are of
an order that cannot be met by better utilisation of existing resources.
·
One of the problems of planning in
the Power Sector has been inflating the demand for grid power. On one hand,
captive generation for the industry has been encouraged, on the other demand
of the industry on the grid is predicted based on earlier growth rates. This
has helped to create a false sense of panic and short term measures such as
expensive IPP power and the liquid fuel route. One of the reasons for
introducing Enron in Maharashtra was the alleged future shortages that were
predicted which are now shown to be fictitious.
·
For a realistic planning exercise,
it is necessary to explode the myth of 1,00,000 MW additions to the installed
capacity required in the next decade. Others are also have noted this
over-projection of demand by policy planners. The growth rate of electricity
is not autonomous but depends on the cost of power, purchasing power of the
people and economic growth. If we look at the steep rise in electricity
rates, we will see that it has risen much faster than either the rate of
inflation or the per capita increase in people’s income, Further the
industrial growth has been low as also the growth of the economy. We will
find that the annual rate of increase in power demand for the last decade has
been of the order 4-5% and not 7-8% as predicted by the 14th,15th
and now the 16th Electricity Power Surveys ? The 15th
EPS estimated that the demand by the year 00-01 will be at 90,000 MW as
against an actual demand of only 73,000 MW for 00-01. A realisic assessment
of demand will show that we need to increase our installed capacity by
25,000-30000 MW every five year.
·
The key issue on the generation side
is low ratio of peak met with existing generating capacity (65%) Even
Philippines, Bangladesh, Pakistan meet a higher peak to installed capacity
ration (75-90%). Even with this poor ratio, actual shortages are much lower
than predicted; shortages of 10% in peak demand and 5% in energy demand.
·
To take a holistic approach on
capacity addition we expect a complementary package from other measures to be
taken, for example, Energy Conservation including Demand Side Management.
This, Combined with the additional energy availability through renovation and
Modernisation, would enable us to outgrow the situation of power cuts and
power shortages. Besides, setting up of a National Grid as a long term
strategy.
·
The amount of new power that is
added in the system has an impact on power tariffs. As is well known, in
computing the price of power, we have to take into account the total pooled
cost. In any electrical system, there are new sources of power that are
expansive, while the older ones have a lower cost. With time, the capital
costs of older plants get written off and their power becomes cheaper.
·
The cost of electricity can be
brought down (Least-cost route) by proper thermal/hydro-mix, indicating well
in advance the plan wise additions of equipments to engineering industry and
to standardize the size of the units. These steps have been given a go-by by
the planners.
·
As regards privitasation 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. The total private projects commissioned are 6768.21 MW
and are under construction amount to 3468 MW in various states. Against this
background it would be obvious that only MNCs will be in a position to take
over Indian Power Sector consequent upon privatisation. On privatisation
Indian Power Sector will be handed over to those entrepreneurs/cheats who
are the brain behind one lakh crores non-proforming assets of the banks
Cooperation of the workers
·
In Electricity workers’ demands
reflect, in an increasingly forceful and urgent way due to highly skilled job
in risk prone area, a number of aspirations for higher pay, job creation and
the maintenance of the existing jobs, better working and living condition and
social protection, which is line with societal development and greater
recognised trade union rights.
·
Under the liberalisation policies,
we have seen the demoralisation of the employees due to gratuitious attacks
constantly emanating from the government and the policy makers. This has been
coupled with a complete absence of political will to support the employees in
recovering dues instead, defaulters are protected under various pretexts.
This has led to sharp increase in theft of electricity.
·
We need to establish a policy, which
involves the workers and other employees in plugging pilferages, instead of
constantly running down the employees.
·
An attempt should be made for
workers participation by evolving a participatory structure in policies and
plans for bringing down losses and making power industry accountable to
people.
·
Energy audits at substation level
onwards, proper provisions of meters, doing away with substandard suppliers
and contractors, a time bound programme of loss reduction, and transparency
and public accountability will go a long way in bringing down such losses.
·
In last five years the PLF of
thermal plants has been raised to 74.3% at centre and 67% at state. Over all
being 69.9% amply demonstrates that despite all handicapes and resource-
constraints PSU employees have shown exemplary efficiency. This explodes the
myth of privatisation.
·
Any organisation which does not
develop its people will not grow. Its commitment to training due to jobs being
specialised in power sector will help to reduce maintenance cost, increase
efficiency and maintain a good industrial relations climate.
·
In the Electricity Bill-2001
the stipulation that “The Employees shall be deemed to have transferred
without any recourse to the industrial disputes Act 1947 or any other law for
the time being in force. The transfer can be provisional for a stipulated
period.” The only caveat would be that term and conditions of the employees
shall not be less favourable than would have been applicable if there was no
transfer.
Let’s Get it Right
Privitisation of public enterprises – it hasn’t been reform,
rather sales.
Who is responsible for making public enterprises a target of
criticism?
To correct these very
problems, we need reform. | 
