ECONOMY-INDIA: Power Reforms Opposed by the Rich

By IPS Correspondents Reprint | | Print |

Paranjoy Guha Thakurta

NEW DELHI, Mar 21 2006 (IPS) - India’s plans to reform its ailing power sector has been stalled by influential sections of society that benefit from subsidies provided by state-run utilities and from stealing electricity in collusion with officials, say experts.

”Substantial improvement in power supply may not take place in the near future unless the core issue creating opposition to reform, that is, the issue of subsidy, is suitably addressed,” says V. Santhakumar, a researcher at the Centre for Development Studies (CDS), a state-run academic institution located in the southern state of Kerala.

Santhakumar, author of the volume, ‘Understanding Social Opposition to Privatising Public Utilities,’ told IPS that the popular perception that electricity tariff reforms would adversely affect the poor was incorrect.

”Those who never receive electricity do not figure in discussions on power sector reforms – they don’t care one way or the other,” says Shubhasis Gangopadhyay, director of the independent, India Development Foundation.

Gangopadhyay says problems relating to power subsidies in India stem from the fact that a major portion of these subsidies go to sections that are already well-off and also vocal. ”The government spends the taxpayer’s money on subsidising the rich, thereby diverting resources that could be much better used on programmes that genuinely help the poor.”

India cannot sustain its current eight percent growth level unless electricity generation keeps pace. The official Economic Survey presented by the government on Feb. 27 points out that power shortage in the country, during peak hours, was around 12 percent while the average shortage stood at eight percent.

More significantly, the survey calculated that production losses associated with inadequate availability of electricity were at a staggering 67 billion US dollars or nearly 8 per cent of India’s gross domestic product.

The government has enacted new laws to improve the working of inefficient and overstaffed state-run electricity boards and also check theft of electricity – often disguised in official records as transmission and distribution losses. Private companies are also involved in a wide range of activities in the country’s power sector. Why then is there considerable social and political opposition to reforming the working of electricity utilities?

Much of the power that is distributed in India is sold at subsidised prices that are way below costs of production, says V. Santhakumar. ”When a public service is being provided to the majority of the people in a certain area with a high element of subsidy and the quality of that service is reasonably good, why should such individuals support major reforms of the system?”

Santhakumar said India could not follow the Cambodian example where private firms generate most of the country’s electricity but at high costs.

Lynn Squire, president of Global Development Network, a non-government organisation (NGO), says that ”reforms that could be beneficial to large numbers of people often run into social and political opposition because their implications are not properly communicated”. The problem, he added, is not peculiar to India or to the power sector.

”We have to educate not just ordinary people but politicians as well as the employees of state electricity boards about what power sector reforms are all about,” says Madhav Godbole, formerly chairman of the Maharashtra State Electricity Board (MSEB).

He adds that he is not suggesting privatisation as a panacea for all the problems afflicting India’s power sector. ”Whether there is a direct relationship between privatisation and efficiency is questionable,” says Godbole, a retired civil servant who has held senior positions in the government of India.

The key issue is to direct subsidies so that they benefit those who need government support the most. ”Subsidies have to be properly targeted from the outset because once these are in place, it becomes very difficult to remove them,” Squire said.

In India’s capital city of New Delhi, power distribution was privatised more than five years ago, but citizens have been loudly resisting efforts to increase tariffs. Whereas transmission and distribution losses, euphemism for large-scale theft of electricity in collusion with corrupt officials has reduced they still remain at high levels of 30-40 percent of total power distributed.

”Privatisation in Delhi has been successful in financial terms because it has helped the local government cut its subsidy bill by 80-90 per cent from the levels prevailing around the turn of the century,” says Partha Mukhopadhyay, senior research fellow at the Centre for Policy Research, an independent think-tank.

Mukhopadhyay adds, however, that many problems persist, such as affluent households and wealthy factory-owners in India’s capital city stealing power through manipulation of electricity meters. “We need better regulation that would lead to more transparency and greater accountability.”

The involvement of private firms in power generation and distribution in India is not new. For over half-a-century, cities like Mumbai and Kolkata have been supplied electricity by private firms. On the other hand, the country’s experience with foreign direct investment in power has been disastrous because of the involvement of the controversial U.S. company, Enron Corporation.

Enron set up what was dubbed as the world’s largest natural gas-fired power project at Dabhol, Maharashtra, on the west coast of India, for roughly two billion US dollars in the early-1990s but, allegedly, bribed officials to draw up terms favourable for itself.

When it looked as if the power-purchase agreement with Enron would bankrupt the MSEB, the state simply refused to pay. This expensive power plant has been closed since May 2001.

The Dabhol power company is currently embroiled in a series of messy legal disputes involving its U.S. promoters (Enron, General Electric and Bechtel) and various Indian banks, financial institutions and government bodies.