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Ourview | Fixing power sector problems

Ourview | Fixing power sector problems
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First Published: Sun, Nov 27 2011. 11 26 PM IST

Updated: Sun, Nov 27 2011. 11 26 PM IST
Strong survival instincts are only natural. However, this is a casualty in governance, numbed by the force of populism. Governments shy away from getting consumers to pay what it costs to supply electricity or use public transport or fuel their vehicles. As a result, state-owned enterprises that offer these services suffer.
In the new millennium, one of the first politicians who fashioned himself as a reformer was former Andhra Pradesh chief minister Chandra Babu Naidu. After four years of “conventional” rule, he shifted gears on being re-elected and raised electricity tariffs by 20% in September 2000. Unprecedented public protests ensued; his party lost a by-election shortly thereafter.
As much as Naidu’s decision was driven by conviction to set right a bleeding utility that hardly recovered costs, it also had to do with the then prevailing environment—the sobering influence of the Enron debacle that played out in the second half of the 1990s. The Enron lesson was twofold —efficient procurement of power and ability to pay for it.
While the first lesson has been imbibed well over the last decade, the second one is out to haunt the power sector again. For tariff hikes have hardly taken place over the last five-six years while generation capacity is being added at a furious pace. According to Central Electricity Regulatory Commission chairman Pramod Deo, tariffs, on average, need to rise by 15-20% every year over the next few years. Signs of collapse are there to be seen—banks are hesitating to lend to distribution utilities.
One politician in recent times who has gone beyond the rationing approach is Tamil Nadu chief minister J. Jayalalithaa. She has suggested immediate hikes ranging from 20% to as high as 170%. She is betting on the short life of public annoyance, that it would not hurt when she seeks re-election four years from now.
But more importantly, politicians need to understand that good governance and credible leadership will more than make up for the discomfort that price hikes inflict on consumers. And they need to educate and demonstrate to consumers that price hikes translate to better services, both on quality and quantity.
What should politicians do to make power sector reforms successful? Tell us at views@livemint.com
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First Published: Sun, Nov 27 2011. 11 26 PM IST