Wednesday, October 15, 2014


Electric power is the bane of India: politicians of all colours use to to bribe voters and make money; as a result, power is expensive and unreliable - a major reason for India's uncompetitiveness. Suresh Prabhu was one of BJP's more rational and honest ministers; no wonder he left before he could make a difference. This column was published in Business Standard of 27 March 2001.


Suresh Prabhu looks incongruous in the company he keeps. He wears a shirt and trousers; no billowing dhotis, no technicolour drapes, no floppy sandals, no orange waistcoats, no swanky turbans for him. The only telltale sign that betrays his provenance is an occasional, carelessly smeared-on red dot. He is also much younger than his venerable colleagues; in our gerontocracy, he and Omar Abdullah look as strange as Sushma Swaraj would in a fashion parade.

He is a Shiv Sainik. That is the party of the foul-tongued Bal Thackeray, the rowdy party that within five years managed to wreck the finances of Maharashtra, India’s richest state – something it could not have done altruistically. So it is quite a surprise to meet Prabhu trying to lay down the law to unruly state governments.
The ministry that he heads has been the seat of some of the most blatant corruption. For the modus operandi, read the Jain diaries; they allege equipment suppliers giving fat commissions to power ministers and bureaucrats. And although we cannot be sure just why he wanted to do so, Prabhu’s immediate predecessor, Rangarajan Kumaramangalam, wanted to give out orders for power plants on a scale never before dreamt of. So if Prabhu were to follow tradition, he would be able to wreck the power PSUs as decisively as his party did Maharashtra government.
But instead, Prabhu has taken on the mantle of a reformer. He says that the state electricity boards are bankrupt, and he wants to restore their financial health. According to him, distribution is the key. The SEBs must meter all connections, and begin to charge all consumers. Next, they must begin to earn enough to meet their obligations. To this end, he is trying to make state governments sign memoranda of understanding with his ministry.
To add to his clout, he got the finance minister to say in his budget speech that he was prepared to make a “one-time settlement” of the SEBs’ dues to central government undertakings – what they owe for the power and coal they have taken – provided they reformed themselves. In other words, he dangled a carrot before the state governments: if they began to collect enough from power consumers to meet their current payments, the central government would write off some of their dues.
Prabhu went further and got the Prime Minister to address assembled state power ministers on 3 March and deliver the same message: start paying for the coal and power you are taking.
What was the calculation behind these high-profile messages? Presumably Prabhu thinks that while the state ministers may not have sufficient respect for his youthful self, they may be daunted by the finance minister who carries financial clout, and embarrassed by the Prime Minister whom some venerate.
But as he walked out after hearing the Prime Minister, Rajnath Singh immediately called the bluff: he said he would not start charging farmers because “they could not pay”. In other words, he was saying, do your worst; I will continue to draw the central producers’ power free, and just you try to stop me.
How could Rajnath Singh be so openly insolent? Because the Prime Minister has made him chief minister of Uttar Pradesh with a one-line brief: he has to win the next assembly election. Lucknow, the Prime Minister’s constituency, is the capital of Uttar Pradesh; the Prime Minister has all his eggs in Rajnath Singh’s basket.
So does Prabhu have a chance? Not really. Five states have signed MOUs with him, but those MOUs will go the same way as the hundreds of MOUs the central government used to sign with public enterprises. When the time comes, state power ministers will find a hundred reasons for reneging on their commitments. They will do exactly what Rajnath Singh will do, only less brazenly. Some would say less honestly.
Not only have Prabhu’s plans been torpedoed by his political ally even before they could be put in place, they are not even worth pursuing. Prabhu envisages a sequence in which the SEBs would first instal meters for every consumer, then start charging farmers a nominal price, then over the years, raise it so as to make power production viable. Just because there is a meter outside his door, a consumer does not have to pay. If he is a farmer, he can collect his friends and block roads or railway lines; if he is a townsman, he will bribe a linesman to doctor the meter.
To which Prabhu has an answer: the meters will be not be at the final destination – the doorstep – but at the origin – in the power station or the at the step-down transformer. But the problem lies not in the lack of technology but in the lack of will. For the same reason as Rajnath Singh, the owners of SEBs do not want to collect the correct price from a farmer or a domestic consumer. And as to Yashwant Sinha’s carrot, that the SEBs’ debts to power PSUs will be written off, every chief minister knows that Sinha is offering a carrot because he does not have a stick.
So why are the heavyweights like the PM and the finance minister making such a noise? Because Vilasrao Deshmukh has opened their eyes. If a state government does not pay its dues to a foreigner, the central government will have to pay them. It is already paying for Enron on account of Maharashtra government’s fecklessness. Every “reforming” state government is borrowing billions from the World Bank for its power reforms; when the reforms fail, the central government will have to pay the bill.
Does the centre have an option? I have three to offer. First, pass a central act abolishing the monopoly of the state electricity boards, and saying clearly that anyone can sell power to anyone else. This is the minimum; it will be enough to let the horribly exploited industrial customers escape from the SEBs’ clutches, sell power to one another and set up economic plants. In states that have separated transmission from generation, it can also be decreed that the transmission corporation will be a common carrier: that it will carry power from anyone to anyone else at a common, non-discriminatory tariff.
Second, abandon the central power plants and coal mines as so much junk. Tell the state governments in which they are located that they can do whatever they like with them. In other words, they can close them down and create power shortages all over the country, or begin to run them at a profit.
Third, impose a tax on all power sold by the SEBs equal to the marginal cost of power – probably about Rs 2 a unit – and put the revenue into a fund which will be given to the states that abolish discriminatory and below-cost pricing of electricity.

I sympathize with Prabhu’s good intentions and appreciate his desire to do something. But I would give him the advice I used to get from a Japanese friend who beat me all the time in Go: don’t make weak moves.