Delhi: Bypolls for 13 municipal wards to be held on May 15

Many services like power require huge capital investments to build and maintain. The charges pay for fuels, labour and other running expenses. They must also produce the surplus for maintenance, modernization and building new capacity. In many states, such surplus is not made. This is so also with water and transport. Services like health and education cannot charge cost from the many poor. If government finances subsidized electricity and has little left for maintenance, renovation and modernization, the amounts available for essential services of health, education, law and order, roads, and so on are also reduced. Corruption and theft in all projects ensure higher costs, poor delivery and terrible quality.

For the electricity sector in India, it was a tragedy that the Indian Constitution was passed in 1949 and not later. Electricity, at that time, was generated locally and consumed nearby. Thus, in December, 1950, the installed generation capacity in the whole of India was 1,713 MW; by March 31 2015, it was 27,1722 MW and this served the country and not just one state. There is much transmission from high-generation locales to those that do not have the fuels for generation. Electricity can now travel very long distances. Generation and consumption are not in one state.

But the Electricity (Supply) Act of 1948 created state electricity boards in each state to be responsible for supplying power in their states. So electricity did not automatically seek markets. The state had to approve import. Decisions on optimizing supplies over the country now are at the mercy of individual state governments.

When the National Thermal Power Corporation was created in 1975, it established large capacities and could transmit electricity between states over long distances. Power began flowing across the country. Power Grid Corporation took over this interstate transmission. Economics teaches that optimum results (adequate supply and affordable prices) for consumers come about with trade. The interstate flow of electricity across India could have made for very efficient power supply at reasonable prices. But the Constitution gave a monopoly on supplies within the state to state governments. Many state governments generate electricity. They can not afford to cut their generation to buy cheaper power from other states.

Populism has entered into the pricing of electricity in each state. These costs are additional to those caused by large-scale collusive thefts, and inefficiency in local generation and distribution, as well as the costs due to users having equipment that waste power. This has led to a complicated structure of cross-subsidies between customer groups, and subsidies to be reimbursed to the distribution companies by the state governments. While tariffs are set each year by statutory regulators, they do not in practice, give adequate net return on capital employed. There is no monitoring and correction of targets in relation to the working of the pricing formula.

A sufficient surplus to invest in in generation, transmission and distribution capacities to meet the galloping demands of a growing economy is essential. Bank borrowings and government budgets today find these funds. Periodic measures to reduce SEB debts have now led to their adding to state government debts with repercussions on their ability to perform other tasks adequately (thus reducing spending on poverty alleviation, infrastructure, education and health). In spite of electricity being unavailable to many and bulk users having to keep backup capacities, half the national generating capacity is unutilized because distribution companies do not have funds to pay for more electricity. Central and privately owned power enterprises, however, are less adversely affected as those owned by state governments. They have the option of stopping supplies, unlike the SEBs.

Regulatory, legal and administrative decisions have to be taken by state governments. The Centre has no direct authority to compel state governments.

Tariff revenues must cover all costs including those caused by inefficiencies, untimely financial disbursements of subsidies. If Discoms were treated by banks like any other borrower and banks instructed not to lend to those with poor balance sheets, they would be compelled to improve their finances. Perhaps losses of SEBs could be made a charge on Central grants to a state, thus reducing allocations meant for other purposes. Central muscle might make states correct themselves.

Governance and management of power companies and regulators must be by career professionals with management experience and long tenures. Appointments of top management in power companies must be for their managerial experience, not administrative service. Regulators must demand that power companies have well considered management systems and procedures.

A top priority is for feeders for agricultural power to be separate. The actual consumption in agriculture, exclusive of thefts must be established so that thefts are not subsumed in it. Emphasis on almost universal grid-connected power must give way to establishing more distributed power through micro-grids connected to the central grid. Achievement must be closely monitored. This must be accompanied by detailed training of panchayat-level staff in technical operation, and watching that every consumer pays his or her dues. Measurements of T&D losses must improve. The governments must establish special police to catch, punish and curb power thefts.

The Central government must exercise its powers to stop production of sub-standard pump sets and other inefficient electricity-using equipment. It may even be worth while for governments to replace sub-standard sets with acceptable ones. Inter-state transmission bottlenecks prevent states from optimizing power purchases. These must be resolved on top priority. Trading and open access can improve availability and price. The power sector should have in each state a bureau that will look for, investigate and try corrupt practices, especially in purchases of power.

With a statutory regulator, autonomous state-owned undertakings, a State Load Despatch Centre that is governed autonomously by users, and the Central Electricity Authority to oversee and guide operating enterprises, where is the need for a department of power in each state government?

These actions might never be taken in adequate measure in our governmental system. The alternative is privatization under strict and truly independent regulation. Public-private partnerships could have private equity holders to prevent waste, theft and loss to the enterprise.