Will Power Surplus Lead To Lower Tariffs For All?

Will Power Surplus Lead To Lower Tariffs For All?

A Committee composed of the chairman of the Central Electricity Authority, the secretary of the Central Electricity Regulatory Commission (CERC), the president of Industry body FICCI, the energy secretaries of Bihar, Tamil Nadu, the principal energy secretaries of Madhya Pradesh, Gujarat and Uttar Pradesh - is about to finalise its report.

The report is on how to tariff electricity in future, not to ration out a scarce resource as before, but to increase its demand.

India is rapidly moving from shortages to surplus of this highly perishable commodity.

A month or so earlier, the same committee was reportedly of the opinion that industries which currently cross-subsidise domestic power tariffs for the poor, should be incentivised to consume more power with lower tariffs. They should also get cheaper power during off-peak hours, felt this committee.

The thinking was not dissimilar to how the Indian Railways are hamstrung and in decline because of its high freight rates, low capacities, dismal performance and safety records and losses over subsidising passenger fares. Even as, despite all this, it loses freight business to road transport.

Then, the electricity committee’s view went, the cross-subsidy burden to keep electricity cheaper for the poor, should be passed on to the larger domestic consumers instead, defined as those who consume more than 800 units a month.

That these domestic consumers, particularly those in the middle classes who ran air conditioners in summer and heaters in winter, were already paying much high tariffs for consuming a couple of thousand units of power or more, notwithstanding.

Now, as the report is about to be finalised and tabled, the committee has happily revised its stance.

It now plans to suggest that ALL large consumers, including domestic ones, should pay progressively less for higher consumption.

The revision in its thinking is prompted by the tendency towards lower generation costs in new facilities, thereby lowering average costs, and the compelling fact that electricity wheeled out must be consumed by ready-made demand or lost irrevocably.

The slabs and steep larger use tariffs, created to serve a chronic power shortage scenario, particularly for domestic consumption, are now rapidly becoming obsolete.

Instead, the idea is to generate enough ready demand in order to sell all the new electricity that is being generated, inclusive of increasingly green - nuclear, wind, hydroelectric and solar power.

With backbone improvements alongside, it is now being transmitted all over the country, and to neighboring countries as well.

In the West, which made sure it does not have any shortage of electricity, utility companies are numerous, largely private, and make routine profits by catering to local area demand.

To them, large consumers, be they industrial, commercial, or domestic, are valuable customers, and to be rewarded for consuming more via reduced charges per unit.

The slab system, obtaining here in India, works in reverse there. Small consumers, more numerous and costly to  service, pay a higher rate.

While it is not appropriate that the millions of the poor should pay more here in India, it is important to take into account that they often cannot, or do not, pay at all.

But, the state electricity boards can only be financially healthy by selling their electricity to solvent large users.

Incentivising them therefore, is the best way to ensure that the impact of cheating, pilferage, transmission losses are recovered. Also that money for operations, maintenance, renewal etc. can be paid for, largely by increasing consumption exponentially.

And this, in tandem with increasing production.

Production of electricity has long been a bottle-neck to India’s industrial and commercial growth, both in terms of scarcity and high tariffs, compared to neighboring countries in South East Asia, let alone much bigger manufacturing countries such as China.

This weakness, combined with other infrastructural lacunae such as connectivity, communications, living conditions in remote areas etc. have held us back, and rendered Indian manufacture uncompetitive internationally. It is no wonder that our biggest success area is in services, particularly in IT, where a lot of it is conducted in host countries. 

Our advantage is cheaper charge-out rates for personnel. Theirs is in the superior infrastructure.

Ambitious programmes such as Prime Minister Modi’s ‘Make in India’ initiative, largely targeted towards high technology and precision defence manufacturing, must suffer from this lack of infrastructure attractiveness for foreign investors.

But under the dynamic Union Power Minister Piyush Goel, electricity, as one of the vital inputs necessary, is not only likely to reach every village before the end of the first term of this government, but is being exported as well.

With the recommendations of this committee now, it may also result in higher and profitable consumption of electricity domestically.

The policy direction being taken by the committee is commendable. Many state governments have rendered their state electricity boards sick. They have given away electricity free to farmers and large non-recoveries from other constituents for political considerations.

While the intentions behind some of this may well be laudable and pro-poor, it is unsustainable in the medium term.

Electricity boards in the red makes it very difficult to repair, maintain, augment, even replace, the concerned facilities.

With losses and mounting debts, there comes a time when the state government itself finds it difficult if not helpless to honour its commitments of providing electricity round-the-clock to all.

Most industry, unable to depend on inconsistent supply, has had to set up captive electricity generation/transmission and distribution facilities, and also use expensive and polluting diesel-based generator banks extensively in order to cope. This is the ground reality over recent decades.  

But, as India moves towards developed nation status from  an emerging economy, it cannot afford to be retarded by lack of essential utilities and facilities.

The past may have been one of neediness and want because of  the adoption of misguided socialist policies. Not only did they result in negligible GDP growth  but compounded mounting problems with backlogs.

But now India is amongst the fastest growing of major economies in the world, with an impressive PPP rating and aspirations to be in the very front rank of nations. 

It therefore cannot but attend to the basic demands of its sustenance.

The danger now is not in boldly enhancing capacity but sliding back because of a povertarian mindset.

Our political establishment and administrative bureaucracy must understand that there is no mileage in harking back and citing our shortcomings.

That post-colonial India with its quaint notions has grown as obsolete as our erstwhile place in the third world.    

For: Nationist Online English

(1,077 words)

January 15^th, 2017

Gautam Mukherjee