Ultra mega
prospects
The central
government has traveled a long road to power reforms. It started in 1992 with
the assurance of 16 per cent guaranteed returns to private investors. The
guarantees were worthless, for the State Electricity Boards owed thousands of
crores to coal companies and railways; unless they achieved solvency, they
could hardly be expected to pay a guaranteed return. So in 2001, the Expert
Group on the Restructuring of SEBs recommended conditional writing off of SEBs’
debts. State governments were delighted to get write-offs from SEBs’ creditors;
but they had no intention of making the SEBs solvent. So the central government
tried to force them. In the 2003 Electricity Act opened up access, which would
have introduced unfettered competition in the power market. But it left it to
state regulatory commissions to introduce open access. State governments know a
trick of two, mostly learnt from the centre. They appointed regulatory
commissions made up of pliant retired bureaucrats; through them the governments
sabotaged open access. The commissions were supposed to set tariffs. But even if
they asked state electricity boards to raise power tariffs, the boards just
ignored their recommendations. In the absence of price reform, competition was
a non-starter.
The UPA
government decided that it was not worth while to force state governments to
make SEBs solvent or introduce competition. But if they did neither, they would
be unable to meet rising power demand. So the power ministry worked out a
clever package: it would ensure that power was produced at the least cost, and
offer it to SEBs at a fixed price. That is how the concept of Ultra Mega
Projects came into being.
In this concept,
the central government takes over all tasks involved in setting up a power
station prior to building it. Thus, it secures a site, and obtains all the
licences, permits and clearances required for 4-GW plants. It then calls for
bids, and hands over the site to the bidder who offers to supply power at the lowest
cost. The bidder’s job is to secure coal supplies, construct the plant and
deliver 4 gigawatts of power into the central grid. Powergrid would deliver it
to various SEBs in preannounced proportions; they would be expected to pay for
it. This package has evoked a strongly positive response. The government has
already signed contracts to build two plants, and is on the way to giving out
three more. That is 20 gigawatts of power, and Rs 750 billion of investment.
The Ultra mega
plants can realize their proceeds in three ways: through revolving letters of
credit, escrow accounts, and failing both, by direct sales to high-tension
consumers. But as long as distribution continues to be under the control of
state governments, they can frustrate all three avenues of realization.
Promising as it is, the new arrangement too will come to a halt if access to
consumers remains in the hands of state electricity boards and they remain
handmaidens of state governments.
Unless
transmission and distribution are separated from state governments, it will be
impossible to ensure that ultra mega projects will get the money for their
power. There are two ways of ensuring this. One is embodied in the 2003 Act:
state governments should separate T&D and hand it over to separate companies.
But as long as the companies are under state governments’ control – whether
they are owned or licensed by them – they will never be able to follow
independent pricing policies.
However, there
is another way. State governments continue to be short of money; therein may
lie a possible way out. The central government already has a wholesale power
transmission network in the Power Grid Corporation. Powergrid should offer to
take over the transmission and distribution network in any state, deliver power
to the final consumers and collect money. If state governments want to
subsidize any particular consumers, it should offer to take the subsidy and
give it to the intended beneficiaries. It should also be prepared to take over
the T&D staff of the SEBs, but selectively and on its own terms. Privatization
of T&D is a non-starter; but nationalization may just possibly work.
Whether it is
separation or nationalization of T&D, the objective should not be lost
sight of: it is open access, or competition. The central government has locked
itself into one size – 4 gigawatts – and one technology – coal-fired plants.
There are good reasons for this lock-in just now – it minimizes the demands on
the government’s organizing capacity – but eventually, the T&D network should
be open to all plants, large and small, based on all technologies, thermal,
hydro, wind-based, or wave-powered. Each plant should find its own market; the
task of the grid should be simply transport of power.
