Author: cprindia

A few months before the next general election, the Central government has proposed a set of changes to the Electricity Act 2003. The amendments seek to enable a market transformation in electricity. The link between political power and electrical power is widely known; promises around electricity access, price and quality are important political currency. However, the expenditure of scarce political capital on this issue is puzzling. The amendments will be hard to get through Parliament (an earlier 2014 effort failed) and voters will not see an immediate impact. What is the political rationality of this effort? Who are the winners or losers from these amendments?

Competition and choice

Bringing in competition and choice in supply for the final consumer has long been an aim of electricity reform and remains central to these amendments. The idea is that while a single public utility will run the wires through which electricity flows, multiple supply licensees (both public and private) will be allowed to compete for consumers. The intent is that the discipline of competing for customers will lead to improved supply and lower bills. However, the global track record on this approach is far from definitive.

While an earlier 2014 reform effort proposed mandatory and time-bound implementation of these reforms, and therefore was resisted by States, the current amendment allows them discretion on the timing of implementation. The combination of time discretion and the improved presence of the ruling coalition in State governments may facilitate passage this time around.

If it does, India could have an electricity distribution sector with pockets of competition for wealthy consumers in a sea of monopoly inhabited by the poorest. Private suppliers could cherry-pick profitable locations and consumers; the state-owned incumbent supplier will be left with the obligation to serve low-paying consumers.

This need not be bad, if there were a mechanism to support the second group. This currently happens through ‘cross-subsidy’ from wealthier customers, but this is also being changed under the amendments. This leaves only the possibility of direct support from States. If these transfers are not forthcoming, or late, the cash-starved incumbent supplier will be locked into a cycle of poor quality of service for its customers who have no ‘exit’ option, leading to more bill evasion, and further financial deterioration.

The amendment (along with changes in the National Tariff Policy) aims to get the price right — a long-standing aspiration — by capping cross-subsidies at 20% immediately, and eliminating them within three years. The cross-subsidy surcharge on open access customers — the fee that holds back customers from leaving the grid — would be eliminated within two years.

There is a compelling rationale for these changes — India has among the highest electricity tariffs for industry, which bears the burden of low-performance and losses among other consumers, impacting their global competitiveness. However, this shift could be highly disruptive if the profit-making side is allowed to flee, without devising a transition pathway for the loss-making side of electricity.

Perhaps because of these political sensitivities, the proposed approach to eliminating cross-subsidies is complicated. Subsidies will not be allowed across consumer categories like industry and agriculture, but will be allowed across consumption categories — big consumers can subsidise small ones. Big industrial consumers will see no effective change, although small business consumers will escape payment of subsidy.

The more significant change is abolition of the cross-subsidy surcharge, which will open the flood gates for large consumers to migrate through ‘open access’ to cheaper sources and avoid paying any subsidy. In short, cross-subsidy will become load-based subsidy, but the load available to pay that subsidy will be allowed to escape.

Where is support for poorer customers to come from? The amendment recognises the need to subsidise the poor, but mandates this be done through direct benefit transfers. However, identifying and targeting beneficiaries remains a challenge. Moreover, with these changes, the mechanism of support for poorer customers will shift from the electricity customer to the taxpayer. Cross-subsidies are certainly distorting. But the solution requires the electricity sector to assert its claims for support in competition with several other possible uses of state funds, introducing political uncertainty.

The proposed legislation makes subsidy to the poor the collective responsibility of the States and the Centre, which has so far been only the responsibility of each State. Notably, the Centre may have access to enhanced tax revenues from electricity because it stands to gain from additional tax revenue from profitable new wires companies and private suppliers. Thus, the Centre could become a new fulcrum of redistribution from wealthy areas in wealthy States, to needy customers that are concentrated in a few States.

While this may be a pragmatic fiscal strategy allowing redistribution across States, it also has undeniable political implications. It provides greater control to the Centre and limits the States’ and regional political parties’ capability to make electoral use of electricity pricing. The politics of power prices will shift from sub-national to national electoral politics. In an electoral context where the battle lines may be drawn between the ruling coalition and strong regional parties, this is worth noting.

Moreover, the amendments have other centralising dimensions. The amendment proposes a re-formulation of the selection committee for State regulators, from a majority of State representatives to a majority of Central representatives.

The Centre will also gain more oversight on capacity addition, through the requirement of detailed project report submission to the Central Electricity Authority. There is no doubt that State performance has been poor on both fronts. But the amendments reflect a clear choice of solution: re-direct responsibility to the Centre instead of fixing the process in the States.

Pump priming generation

Many generating companies have been in the news recently due to decreasing demand for their power and consequently their stranded assets. The amendments potentially provide comfort to them at the expense of distribution companies. Specifically, they mandate that suppliers sign power purchase agreements (PPAs) to meet the annual average demand, ostensibly to ensure 24×7 power for all, which will be subject to review and compliance measures.

The challenge of low demand for existing power is undoubtedly an issue. However, the logic of this move is curious; disincentives to serve poor customers rather than availability of power is the real obstacle to 24×7 power. The gain to generators could come at the cost of customers, who, through the PPAs signed by supply companies, have to ultimately bear the risk of uncertain load growth, prices and migration.

The amendments include many other provisions, notably around making the Act more up to date with regard to renewable energy, which is a worthy objective. In terms of the big questions, it places its bets on more competition, subsidy reform, a steering role for the Centre and throwing a lifeline to generators.

There is no doubt the status quo is unsatisfactory; India’s electricity sector remains beset with problems. Yet, the amendments leave quite unclear what happens to those left behind by distribution reforms and by efforts to help out generators. Disruptive change in Indian electricity may be needed, even inevitable. But the amendments risk placing the cost of disruption on the backs of the poorest, and shifts the potential for ameliorative measures to the hands of the Centre, rather than the States.

All three authors are affiliated with the Centre for Policy Research. Ashwini K Swain is a visiting fellow, Parth Bhatia is a Research Associate, and Navroz K Dubash is a Professor. This opinion piece was featured in The Hindu on Tuesday, October 9. The full article can be accessed here.

Op-Eds in the Mapping Power Series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

More details about the Mapping Power Project can be accessed here. 

The Indian economy is among the fastest growing in the world. Sustaining this growth requires a healthy electricity sector that is able to meet increased demands, ideally alongside an eye to environmental sustainability. Yet, electricity consumers continue to face unreliable supply, distribution utilities are in poor financial health, and, most problematic, power plants remain under-utilized even as universal 24*7 supply remains an unfulfilled promise. Far from buttressing growth, the sector risks acting as a drag on the economy as its poor finances reverberate through the Indian banking sector in the form of stubbornly intractable non-performing assets.

These long-standing problems have not persisted for want of attempted solutions: opening up the sector to private generation; regulatory reforms; an omnibus federal Electricity Act in 2003 to introduce competition; and successive efforts to restructure discom finances. The persistence of utility failures speaks to an underlying flaw in the approach taken thus far. All past reform efforts have had, at their core, a common effort to insulate the sector from politics.

In our recently released book Mapping Power, we argue that this approach is misplaced. Electricity reform will succeed only by providing greater political payoffs than the flawed status quo. In a developing country like India, where citizens’ life chances are strongly influenced by electricity access, costs, and performance, electricity is invariably political, and this is how it should be in a democratic polity. Far from de-politicizing the sector, successful reform will require deeper, but more careful, engagement with politics.

Is productive political engagement possible in the power sector, leading to simultaneous electoral and electricity gains? To explore this question, we worked with a set of talented researchers to examine the politics of electricity in fifteen states from the mid-1990s to the present. In this introductory article we explain what our work suggests not only for why politics is important for India’s power sector but how it is best examined and addressed. In articles that will appear throughout this week in these pages, four of our colleagues share their state-level case study findings.

Our framework for Mapping Power can be summarized in three steps. First, start with understanding state-specific factors driving politics and power. Thus, electricity politics may be driven by subsidy and quality of service in Delhi, procurement politics in Jharkhand, farmer subsidies in Punjab, the balance of farmer and industrial interests in Maharashtra, and high loss levels and theft in UP. As this suggests, mapping power requires exploring politics beyond the power sector alone, including party politics, the politics of regionalism within states, and patterns of economic development. While national-level politics and technology drivers are also important, the starting point must be dynamics that are state-specific.

Second, four categories are crucial to understand the political economy of power: demand for access and service quality, demand for subsidies, cost of supply, and available financial space. The first two—demand for access/quality and subsidies—represent political demands placed on the system, and the last two represent the extent of breathing room that enables states to manage those political demands. While the importance of each of these factors may vary across states, collectively these four categories, combined with the reform process and the interaction between them as shown in the figure, constitute a way to map the political economy of power in states.

Figure 1: Four categories are crucial in understanding the political economy of power.

Third, applying this understanding to a forward-looking analysis, how can state governments pursue a virtuous cycle between electoral and electricity politics? In a state such as Bihar, the answer lay in promising and delivering on energy access, taking advantage of low cost power in surrounding states. In Gujarat, creatively managing farmer pressure through a mix of technical solutions and political promises was key. Other states are trapped in a vicious cycle, and the starting point is to tackle the driving factors, whether the expanding scope of subsidies in Tamil Nadu, or high cost supply and high losses in Rajasthan.

Applying this framework, which leads to diverse state-specific explanations, also allows us to comment on the national-level electricity challenges described earlier. With regard to electricity for the poor, electoral gains and electricity outcomes point in opposite directions. In an effort to limit their losses, discoms have strong disincentives to connect new citizens to the grid and provide only minimal quantity and quality of supply to the connected poor, because most pay below-cost tariffs. Simply calling for tariff increases to match costs is unlikely to win voter consent, given the low credibility of discoms to deliver improvements. Resolving this situation requires developing a state-specific pathway that appropriately sequences politically credible quality improvements and tariff increases alongside expanding the financial space to actually implement such a pathway.

Moreover, distribution company finances could be further squeezed by slower growth in industrial electricity demand, which would limit the amounts of cross-subsidies available to compensate for low paying customers. Periodic bailouts, the most recent of which is UDAY, are intended to alleviate this financial pressure on distribution companies. But unless the breathing room thus generated is explicitly and intentionally used to fundamentally alter some mix of the four key factors described above —political demands for access and subsidies, or supply costs and fiscal space – the result will only be to kick the financial can down the road.

Solving India’s electricity problems by continuously devising ways to shut out politics and pretend the sector can be run apolitically simply will not work. This is not to be naïve and suggest that the power sector must be swayed by every political gust. Rather, we need more creative politics, based on a careful analysis of state-specific links between politics and electricity, which can credibly promise and deliver on long-term electricity gains, and reap long-term political rewards.

The authors of this piece are Navroz K.Dubash (Professor, Centre for Policy Research), Sunila S Kale (Professor at the University of Washington), and Ranjit Bharvirkar (Principal at the Regulatory Assistance Project).

This article was published in the comment section of the Hindustan Times on 17 September 2018, and can be accessed here. Subsequent articles will be published simultaneously in the Hindustan Times and on the CPR website. 

Op-Eds in the Mapping Power Series:

• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• Power Politics at Play
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

More details about the Mapping Power Project can be accessed here.

In the last week, Jharkhand’s state government inaugurated its first fleet of electric cars for official government use. Launched with much fanfare and coverage, the chief minister, energy secretary, and JBVNL (the state’s main discom) MD were all in attendance at an event in which Ranchi joined the ‘energy revolution’. Yet the installation of charging stations around JBVNL offices and the procurement of electric vehicles is a strange ambition for a city which is still plagued by regular power cuts, even in some of its most affluent neighbourhoods. In a state where almost half of all households are still without power, this event is yet another public relations exercise overshadowing the state’s more fundamental energy problems. Jharkhand’s power problems originate from three key areas: financial distress, capacity problems and out-of-state conflicts.

Jharkhand has had a history of low tariffs, high technical and commercial losses, and high external dependency due to a lack of in-state generation. Almost seventy percent of JBVNL’s power purchase costs come from Central generators, or entities like the Damodar Valley Corporation (DVC). From the latter, the cost of power tends to be unusually high, accounting for a large portion of JBVNL and the Energy Department’s overall expenditure. While the PPAs with DVC will expire in a few years, for now JBVNL has been stuck with both high-power procurement costs and major problems in recovering dues and preventing theft. A severe shortage of working capital over the last decade has led to the state’s discom frequently defaulting on or delaying dues to generators; it is barely capable of maintaining manpower, procurement pipelines and the existing grid infrastructure.

In the last six months, the JSERC approved major increases (between Rs. 1.90-3.15) in retail tariffs across almost all categories of domestic and commercial consumers, both rural and urban. In a departure from almost a decade of JSERC rulings, the most recent tariff orders sweepingly simplified JBVNL’s existing tariff schedule and also declared its intent to eventually dispense with the massive cross-subsidies that had been in place from industry to domestic and agricultural consumers. Not surprisingly, the government soon stepped in with a large financial compensation package to JBVNL so that rural customers would be minimally affected by these hikes. While this is a commendable move towards improving the financial situation of the JBVNL, much like the previous UDAY scheme all it really does is move liabilities from the discom to the state government; a temporary bandage as opposed to the deep surgery needed to fix the state’s power problems.

The crisis in the state’s electricity bureaucracy is just as worrying. Despite the many promises made to the Central government associated with UDAY, accusations of meter tampering, graft, and preferential treatment in the granting of industrial power connections are rife among the state’s power bureaucracy. Not long ago, an open and shut case of industrial power theft was dismissed in the Ranchi High Court because JBVNL engineers failed to collect sufficient evidence, leading to the discom MD admitting that “[O]ur engineers lack proper training and skills to gather evidence to prove industrial power thefts. This combined with the rapid spread of subcontracting for many basic functions has left the state discom with little credibility of actually accomplishing the grandiose expectations of the Central government’s electrification schemes before the next election.

To be fair, the state’s discom has not been the sole cause of electricity problems in Jharkhand. Because of the language of the DVC Act, 1948, the DVC is responsible for power supply to seven districts in Jharkhand for more than 11 million residents. Because of the protracted financial disputes with Jharkhand leading to the withholding of power, and its underinvestment in distribution infrastructure, the DVC was recently hauled up by the National Human Rights Commission for failing to perform its statutory duty in those seven districts. Such overlapping jurisdictions and the inability for the state government and its politicians to resolve these disputes over the last decade and a half has meant that much of Jharkhand is still very far from the utopian vision of Power for All.

Unless Jharkhand is able to shed (or renegotiate) its legacy contracts, complete its within state generation projects, and generate some reserves of working capital for JBVNL, it is difficult to see the light at the end of the tunnel. Until then, selling dreams of electric cars seems like a cruel joke to the tens of millions of citizens who watch the car zooming by at speed, ignoring them as they are left in the dark.

Rohit Chandra recently completed his doctorate at the Harvard Kennedy School. His work focuses on state capitalism and energy policy, and he is currently writing a book on India’s coal industry. This research is based on work presented in full in the book Mapping Power, edited by Navroz K Dubash, Sunila S Kale, and Ranjit Bharvirkar.

Op-Eds in the Mapping Power Series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Power Politics at Play
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

More details about the Mapping Power Project can be accessed here.

Into the 1990s, West Bengal’s sultry summers meant interminable power cuts and fewer than one in five rural households had electric lighting. Today, by contrast, villages across the state are electrified and Bengal’s utilities boast a shelf of prestigious awards. Nonetheless, there are also dark clouds on the horizon as financial losses once again start to mount – thanks most recently to a 23% cut in electricity bills for this year’s Durga Puja displays.

West Bengal’s journey shows that escaping a low-level equilibrium in the power sector is possible, but sustaining a virtuous circle of payment and performance is often difficult. The temptation for political interference in the day-to-day operation of power utilities is ever present. Though the CPI(M) had governed West Bengal since 1977, its electricity record had been unimpressive. All this changed when the nominally socialist administration revised its economic strategy in order to court private investment. Reliable power would be a pillar of the new pro-industrial turn.

In the early 2000s, a team of senior bureaucrats and consultants began electricity reforms. Well aware of the failures of privatisation and deregulation in other states, they developed their own incremental reform path. Outside Kolkata, utilities remained under public ownership, but managers were granted greater autonomy. Officials hoped to further “reduce the human element” of corruption and inefficiency through computerisation and performance monitoring throughout the workforce. The ultimate goal was profitability, which would guarantee the utility’s independence.

This model looked surprisingly similar to another very different and more famous case: Gujarat. Both emphasised improved utility governance, technical solutions, and winning over employee unions. Both rejected outright privatisation and sought to minimise citizen participation in their electricity regulatory process. Together, these cases suggest that public sector reforms may offer a pragmatic alternative to controversial electricity liberalisation.
While popular opposition had stymied power reforms elsewhere in India, Bengali policymakers also benefitted from a series of favourable factors. Earlier, land redistribution meant that there was no powerful farmer lobby to block tariff hikes.

Like the BJP in Gujarat, the CPI(M) was able to call upon its political dominance and disciplined, centralised structure to manage dissent. The results were impressive. From losses of ~1,009 crore in 2001— more than a third of total expenditure — West Bengal was one of only three states with profitable utilities in 2011. Rural household electrification rose from 20.3% in 2001 to 98% today. Yet, as early as 2010, there were ominous signs that utility independence was under threat.

While the CPI(M)’s embrace of economic reforms had brought rewards in the electricity sector, state violence over land acquisition in Nandigram and Singur created a groundswell of popular discontent. Intensifying competition between the CPI(M) and Trinamool Congress, in turn, increased the temptation to meddle in the power sector in order to win votes. Combining quarterly billing data with satellite images of nighttime lights across West Bengal, a recent working paper by the economist Meera Mahadevan shows this politicisation at work. She finds that the new Trinamool government rewarded constituencies it narrowly won in 2011 with faster electrification and systematically lower bill collection. Billing data from these areas is full of suspiciously round numbers, she argues, suggesting it has been manipulated. Key posts in the electricity regulator were also left vacant, undermining its power of oversight, while tariff hikes were delayed.

Traces of utility independence nonetheless remain. The original reformers mobilised to ensure tariff rises in 2012. After the 2016 state elections, which Trinamool again won handsomely, tariffs were once again allowed to rise. The new government has also ushered in an impressive expansion of rural electricity access. As Lok Sabha elections approach, though, tariff hikes have been blocked despite increasing utility costs. Utilities therefore face mounting financial losses, threatening their ability to invest in the sector’s continuing growth. Eventually, consumers will pay the price.

Classic theories developed in the West suggest that democratic competition makes politicians more likely to deliver collective goods. West Bengal’s ambivalent trajectory— two step forwards and one step back— suggests instead that intensifying competition encourages short-term strategies that undermine the power sector’s longterm health. A similar pattern is visible even in wealthier states like Tamil Nadu and Punjab, where fierce partypolitical competition has driven the expansion of populist subsidies and spiralling utility debts. Conversely, oneparty dominance may give politicians the confidence to take unpopular decisions like cutting subsidies or cracking down on theft.

Today, the Trinamool regime looks dominant, its CPI(M) rival a spent force and the BJP still playing catch-up. Will the administration therefore decide to take a long-term view and end interference in the power sector? Previous experience suggests that this depends on how politicians perceive the likely risks and rewards. If consolidating electoral strength remains the key concern, as it seems presently, they will continue to reward new voters with cheap electricity and turn a blind eye to power theft.

If ensuring robust industrial and revenue growth becomes the priority, the long-term benefits of high-quality electricity may begin to outweigh the perils of short-term dissatisfaction. As citizens begin to expect 24/7 power in Kolkata and beyond, they may start holding politicians to this higher standard. In the longer term, then, popular pressure will become the guarantor rather than the enemy of a virtuous cycle in the power sector.

Elizabeth Chatterjee is a politics lecturer at Queen Mary University of London. This research is based on work presented in full in the book Mapping Power, edited by Navroz K Dubash, Sunila S Kale, and Ranjit Bharvirkar.

This article was published in the comment section of the Hindustan Times on 20 September 2018, and can be accessed here. 

Op-Eds in the Mapping Power Series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• Power Politics at Play
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

More details about the Mapping Power Project can be accessed here.

Mapping Power: The Political Economy of Electricity in India’s States, edited by Navroz K Dubash, Sunila S Kale and Ranjit Bharvirkar, provides the first comprehensive analysis of the politics of electricity distribution across fifteen Indian states. The book examines why, despite several decades of reform, India’s electricity sector remains marked by financial indebtedness and an inability to provide universal, high quality electricity for all. In chapters written by scholars of politics and electricity, the book traces the power sector in states as diverse as Andhra Pradesh, West Bengal, and Jharkhand. Through these state narratives, the authors argue that attempts to depoliticise electricity reforms are misplaced. Instead, they argue, successful electricity reforms in India depend on linkages with electoral gains.

The book was launched in September 2018 by Suresh Prabhu (former Union Minister of Commerce & Industry and Civil Aviation), Jairam Ramesh (Member of Parliament), Narendra Taneja (National Spokesperson, BJP), and Dr Pramod Deo (former Chairman, Central Electricity Regulatory Commission). Since then, it has been reviewed by:

• Ramesh Matham: ‘Mapping Power — The Political Economy of Electricity in India’s States’ review: Grid shortfall,’ The Hindu

“The 15 articles serve as a one-stop shop for information about the power sector’s tryst with politics and are quite interesting… In as much as it zooms-in into the relationship between politics and the power sector in fifteen big states, the book is timely and useful, because the Electricity Act is going nowhere.”

• Kaveri Iychettira: Volume 40, Number 4 of The Energy Journal (p. 260), IAEE’s Energy Economics Education Foundation

​“This book is an ambitious and substantial contribution to current day thinking on the challenges of India’s power sector. It is methodologically well-grounded in relevant theory and data… The focus on states contributes to bridging a crucial gap that exists in literature today, as most existing studies on India’s electricity sector address the country level. This work is a vital contribution towards not just informing India’s policy pathways, but also towards a methodological blueprint to understand the levers that drive electricity sector development across much of the developing world.”

• Ajay Shankar: ‘Politics in Power Sector Reforms,’ Business Standard

​“The editors have done commendable pioneering work in bringing the “political economy” to the centre of the analytical framework, which is an overdue course correction in the study of the electricity sector in India.”

The launch of Mapping Power was followed by a technical panel discussion with Professor D V Ramana (Professor, Xavier Institute of Management Bhubaneshwar), Aditi Phadnis (Political Editor, Business Standard), and Shantanu Dixit, the Group Coordinator of Prayas (Energy Group). Read more about the Mapping Power book discussion event hosted by the Centre for Policy Research and Oxford University Press here.

To learn more about the state-level politics of electricity in India, check out the Mapping Power blog series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

The electricity sector in Tamil Nadu has the third highest generating capacity, has achieved near total electrification of all its households, and can boast of the highest capacity for renewable electricity generation among the Indian states. At the same time, in terms of financial performance, Tamil Nadu’s power sector has been among the worst performing three utilities in the country in recent years.

During the fifties and sixties, in spite of having significant expansion of rural electrification and also subsidising the consumption of rural consumers, the utility was able to generate a modest surplus without any subvention from the state government. However, since 1970 -71 it has been incurring losses on account of the subsidised rates for electricity to certain consumer groups, as required by the state government. The state government’s subvention provided to the utility was adequate to compensate for this till 2000 – 01 after which it has been inadequate.

Between 2008 and 2012 severe power shortages were witnessed and the utility was able to meet only two-third of the maximum demand. The industrial sector bore the brunt of this shortage and while Chennai suffered two hour power cuts for a period of time other areas faced 12 to 14 hours of power cut. A higher proportion of the energy sold to the consumers came from power purchased at a higher cost compared to the cost of TNEB’s own generation. For the period 2002-03 to 2014-15 the subvention from the government covered only 29 per cent of the utility’s losses, on an average. The cumulative amount of uncovered losses at the end of 2014-15 was close to Rs. 90,000 crores. TNEB’s debt burden was about 50 per cent of the state’s debt in 2013-14.

Figure 1: Average Cost of Service and Average Revenue Realised (Source: Power Finance Commission Reports). 

After the legislation of the Electricity Act in 2003, TNEB was among the last states to unbundle and the unbundling is only cosmetic. The Tamil Nadu Electricity Regulatory Commission (TNERC) was constituted in 1999 but was without a Chairman till 2002. The members and staff of the Commission have mostly been chosen from ex-TNEB employees. The TNERC its first tariff order issued in 2003, directed TNEB to get all consumption metered, including those of agricultural pumps and huts, within three years and to issue new connections only on a metered basis. As of 2017 this has not yet been implemented. Between 2003 and 2010, TNEB did not seek any tariff revisions and did not submit the mandatory Annual Revenue Requirements. The regulatory process is thus subject to ‘state capture’ and the deeply ailing state utility is protected from any effective competition.

The continuously deteriorating financial position of the utility has adversely impacted the cost and the quality of access in the state. In addition, the indiscriminate subsidies have created significant negative externalities by promoting unsustainable use of groundwater and have also eroded the competitiveness of the industrial sector due to the double burden of cross subsidies and power cuts imposed on them.

Why and how did all this come to pass in a sector whose financial performance was good till the seventies, within a state that had good economic and human capabilities? The answer requires an understanding of the evolution of the power sector in Tamil Nadu as institutionalised through the provisions in India’s Constitution, its Directive Principles for State Policy and relevant legislations, and as shaped by state level political economy aspects relating to its governance. In particular, the interplay between group interests, political aspirations, technological factors, and the nature of control afforded to the state government over this sector have influenced, and in turn have been influenced by the performance outcomes in this sector.

The problems started in the sixties when the green revolution happened. The increased risks and unequal economic impact of green revolution on the farming community gave rise to a well organised peasant movement that managed to avail a lot of concessions from the state governments. Subsequently, the sector became a means to gain political popularity and financial rents at the same time, by subsidising consumers in an indiscriminate manner, while the utility went deeper and deeper in the red. There is a path dependency in this process that seems to be difficult to escape. Having gone down this path, both vested interests and competitive politics constrain the political will to reverse the trend and the sector seems to be caught in a subsidy trap.

Hema Ramakrishnan is a faculty Member at the Madras School of Economics. This research is based on work presented in full in the book Mapping Power, edited by Navroz K Dubash, Sunila S Kale, and Ranjit Bharvirkar.

Op-Eds in the Mapping Power Series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• The Story Behind Uttarakhand’s A+ Performing Discom
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• Power Politics at Play

More details about the Mapping Power Project can be accessed here.

This year Uttarakhand’s state electricity distribution company (discom) was awarded an A+ by the Ministry of Power for its strong performance. This is an impressive achievement. Every year the Ministry of Power evaluates the financial and technical performance of India’s state discoms, giving each a rating between A+ and C. The Uttarakhand Power Corporation Limited (UPCL) was the only discom outside of Gujarat to secure an A+ rating. Only five of forty-one state discoms in India were given the top mark.

Uttarakhand’s power sector has undergone a remarkable transformation over the last two decades, to arrive at the position today where the state’s lone public discom is able to out-perform most of its peers around the country. At the root of this transformation have been two crucial elements: plentiful cheap hydro power coupled with rapid industrialisation in the state. Together these have been a golden combination for Uttarakhand. With cheap power and plentiful industry revenue, the UPCL has been able to improve its financial performance. This has happened even while the UPCL continues to report high commercial losses among non-industrial consumer groups.

When setting out as a newly formed state in 2000, Uttarakhand was under-developed, with low levels of industry and subpar electricity transmission infrastructure. Shortly after the state was formed, the UPCL’s industry users made up 21 percent of consumption, and the discom was reporting aggregate technical and commercial (AT&C) losses of 54 percent. The consumer mix and loss levels were akin to neighbouring Uttar Pradesh, from which Uttarakhand was carved-out. Yet while Uttar Pradesh has seen little change in its power sector situation in the years since, Uttarakhand’s power sector was soon to be on a path of transformation.

First, Uttarakhand had inherited a large amount of hydro power generation capacity. In 2003, the total energy available to Uttarakhand was 5,300 million units, while the state’s requirement was just 3,900 million units. In 2003, the newly set-up Uttarakhand Electricity Regulatory Commission (UERC) capitalised on this advantage, ordering a reduction in electricity tariffs. In its first tariff ruling, it significantly reduced the tariff that the UPCL had to pay the state’s hydro power generation company, which allowed it to then order the UPCL to reduce the tariffs that it charged to all consumer groups, except farmers. This firmly established Uttarakhand as a low tariff state, attractive for industry.

Second, in 2003 the Government of India launched an industrial policy for Uttarakhand and Himachal Pradesh, which included generous tax and central excise benefits to industry investing in the state. The policy was a huge success. Between 2000 and 2011, the number of factories in the state more than tripled. The result of this was that a favourable consumer mix was won for the UPCL. By 2011, industrial consumers contributed 63 percent of the UPCLs revenue, even while they only made up 1.1 per cent of its customers. Industry revenue is important, because industry users pay higher tariffs, cross-subsidising discom losses made supplying domestic and agricultural consumers at lower tariffs.

Plentiful cheap hydro power and a large revenue stream from industrial consumers transformed the position of the UPCL. In 2016-2017 the UPCL’s reported AT&C losses of just 16.28 percent. Power cuts in Uttarakhand are limited, universal electrification has been achieved, and the state government does not subsidise electricity tariffs.

Figure 1: Revenue Mix in 2016-17

The UPCL has been able to secure its A+ rating even as clear problems remain. Beyond industry consumers, AT&C losses associated with all other users in the state were 27 percent in 2016-2017. In seven distribution divisons, AT&C losses are in excess of 30 percent, including Roorkee where they are 36 percent. For years the UPCL has moved slowly to deal with these losses. Every year the UERC orders the discom to act on high levels of provisional billing, to replace mechanical meters and defective meters, and to claim outstanding arrears. Each year the UPCL makes little progress on these problems.

Having a state discom ranked A+ for its performance makes Uttarakhand an outlier state in terms of its power sector. Looking to the future, several road bumps lie in view. Rapid economic growth and industrialisation in the state has meant that electricity demand has risen fast. Yet there has been insufficient cheap hydro power capacity added to meet this demand. Instead, the UPCL is increasingly purchasing much more expensive gas-based generation. This is feeding through to higher tariffs. Coupled with this, central government incentives are now expiring which brought many industry players to the state. Industrial consumption over recent years has decreased marginally in Uttarakhand. The UERC puts this down to growing use of open access mechanisms that allow industry to buy power from generators outside the state, the installation of rooftop solar, and the effects of energy efficiency programs. If Uttarakhand fails on providing quality and reliable supply of power at competitive rates then industry consumption may fall further. In such a scenario, the UPCL’s performance is likely to suffer, and its A+ rating will be at risk.

Jonathan Balls is a New Generation Network (NGN) Post-Doctoral Scholar at the Australia India Institute, University of Melbourne, Australia. This research is based on work presented in full in the book Mapping Power, edited by Navroz K Dubash, Sunila S Kale, and Ranjit Bharvirkar.

Op-Eds in the Mapping Power Series:

• Reform is All About Getting the Politics Right
• How to Reform Uttar Pradesh’s Troubled Power Sector
• Consumers Upfront in Tale of Two Reforms in Andhra
• Taking Two Steps Forward, One Step Back
• Karnataka’s Power Politics
• AAP and the Politics of Power in Delhi
• New Trends Demand New Strategies in Maharashtra
• Electricity Distribution in Gujarat: A Sustainable Energy Future Roadmap?
• Small Gains Behind Mounting Losses in Jharkhand
• Power Politics at Play
• The Saga of the Subsidy Trap in the Tamil Nadu Power Sector

More details about the Mapping Power Project can be accessed here.

Watch the full video (above) of the talk by Nicolas Bautès where he discusses the various social and legal strategies adopted by different actors in the context of urban restructuring in the Port zone of Rio de Janeiro, with focus on the particular case of landmarking Pedra do Sal, an Afro Brazilian historical and religious monument located in this zone.

Through the claims of inhabitants who have faced the consequences of historical injustice as well as the current urban reforms, Bautès discusses ways informal power games, social pressure and intimidations permeate the harbor district as it undergoes profound structural changes, and operate decision making processes, influence speculation and promote economic benefits through producing and marketing heritage.

Nicolas Bautès is Research Fellow at the Department of Social Sciences of the French Institute of Pondicherry, and works in the field of urban studies, social and political geography.

The question and answer session that followed can be accessed here. Find all the available videos of our previous workshops, here.

Watch the full video (above) of the talk by Priya Deshingkar, based on research conducted in different locations in Africa and Asia (including India), to understand the conditions in which low-skilled migrants are recruited and employed.

In this talk, Deshingkar highlights the often complex and contradictory outcomes of migration, and the difficulties this creates for dichotomies of forced and free labour.

The Q&A session that followed can be accessed here.

Watch the full video (above) of the talk by Priya Deshingkar, based on research conducted in different locations in Africa and Asia (including India), to understand the conditions in which low-skilled migrants are recruited and employed.

In this talk, Deshingkar highlights the often complex and contradictory outcomes of migration, and the difficulties this creates for dichotomies of forced and free labour.

The Q&A session that followed can be accessed here.