09 June 2015 | Gayrajan Kohli
Since taking over office, the central government, under the aegis of Mr Piyush Goyal, Minister for Power, Coal and New and Renewable Energy, has repeatedly stated its goal of providing 24-hour power supply across the country. Mr Goyal has laid out a detailed plan to accomplish this critical and difficult goal, the effects of which we are seeing today. A careful inspection reveals though, that these plans (detailed below) and subsequent actions are mostly focused on energy generation. However, 24-hour power supply requires not just ample generation but also a robust bottleneck-free transmission infrastructure and a reliable distribution network that is unobstructed by populist measures and influence.
- While the central government’s focus has been on generation, power disruption is mainly a distribution problem
- There is only one major policy initiative to fix the distribution issues, and it’s not very effective
- The proposed amendment to India’s Electricity Act might be a vital part of solution, but it faces stiff political opposition in parliament
Sixty-seven years after independence more than 30% Indians still live without reliable access to grid electricity. And a majority of those who do have grid access suffer, on average, 5-6 hours of daily power disruption, making costly inverter-battery power backup systems commonplace. In an effort to meet our energy needs Mr Goyal has aggressively pushed to secure fuel (coal and gas) for the thermal plants, restructured the bureaucratic process making it open and efficient, and, most visibly, set ambitious solar and other renewable targets — however, more needs to be done.
There is no doubt about the size and complexity of the situation. Just to exemplify – on the bureaucratic side, it requires the newly collated Ministry of Power, Coal and New & Renewable Energy to coordinate with the Ministries of Environment and Forests, Railways, Finance, Commerce and Industry, External Affairs, Steel, Mines, Petroleum and Natural Gas, Law, Science and Technology, Development of North Eastern Region, Labour and Employment, Rural Development, and Urban Development, amongst others, for major decisions and initiatives. Complicating it further is the fact that electricity is a concurrent subject, i.e. it is the shared responsibility of both the central and state governments (see demarcation below), and as such the central government has limited implementation control or guidance at the distribution level, where the toughest problems await.
In September 2014, Mr Goyal outlined a number of tasks and initiatives through which he wants to achieve 24-hour power (highlights in table below). While none of these can function in isolation, it is interesting that only one initiative—the Integrated Power Development Scheme (IPDS)—targets India’s distribution network. Its purpose is to help reduce grid losses, strengthen sub-transmission and distribution networks, and fix administrative losses in accounting, billing and collections through IT integration. It also replaces the largely ineffective R-APDRP scheme.
However, IPDS faces considerable challenges. Its basic premise (as was also the case with earlier, unsuccessful initiatives) is to relieve the financial stress on India’s hugely loss-making DISCOMs mostly through tariff escalations, thereby allowing them to avoid load shedding and provide uninterrupted power. Unfortunately, this is a political minefield in a country where low power tariffs are a favourite populist weapon wielded successfully during elections. Moreover, the centre depends on state governments and state DISCOMs to implement the tariff escalations and the requisite infrastructure upgrades—and they may not want to play ball. And herein lies Mr Goyal’s biggest challenge. To accomplish his goals he will have to convince all 22 non-BJP state governments to join hands with the central government and fix the distribution issues.
A way out?
In December 2014, a crucial amendment bill to India’s foundational Electricity Act was introduced in parliament. The bill seeks to unbundle the distribution network and electricity sale and supply. It will not only allow customers to choose their power supplier, but also allow market based price discovery. Additionally, it will drastically reduce the overreaching political meddling in the DISCOMs, thus allowing DISCOMs to provide more reliable power to their customers through cost recovery.
Unfortunately, the bill has already garnered stiff resistance from opposition parties and might continue to do so until it is modified to leave loop holes to allow political influence on consumer segment electricity pricing. While Mr Goyal is going to fight hard, unless the proposed amendments in the Electricity Act are approved and enacted, India will continue to grapple with power cuts, and Narendra Modi’s promise of, and India’s desire for, 24×7 power supply shall remain a distant dream.
Thankfully, there is some ray of hope. Non-BJP states are also power hungry and are therefore ready for dialogue with the central government. And, although the proposed amendment to the Electricity Act cannot alone bring relief to the sector – which needs major structural and tariff reforms at the central and state level, and fully independent regulators – it is a step in the right direction and will lay the groundwork for subsequent reforms.
Gayrajan Kohli is Senior Manager – Consulting at BRIDGE TO INDIA