Union power minister Sushil Kumar Shinde has claimed that losses of state-owned electricity companies are simply too large to be wiped out clean in one go.
In a story detailed in Mint on Monday, he advocated a step-by-step, phased approach in restoring the financial health of these entities. He was, of course, being optimistic. The accumulated losses of state-owned distribution companies are close to Rs2.5 trillion. Cash losses of these companies are increasing by nearly Rs1 trillion per year out of which nearly Rs40,000 crore is due to transmission and distribution losses, a euphemism for power theft, losses due to obsolete technology and faulty meters.
These are not economic problems in the usual sense: They are mostly political. For one, especially at the distribution end, many states charge ludicrously low tariffs for power (for example, Tamil Nadu) or simply give away the stuff for free (Punjab is an infamous example). State governments, which own power generation, transmission and distribution companies, are loath to raise electricity prices for fear of antagonizing voters. The result is that these companies are often nothing more than government departments, though the fiction of “corporate structure” is often maintained.
The way out of the situation would have been two fold. To privatize these companies after unbundling state electricity boards followed by competitive setting of power tariffs determined by a regulator.
This was one of the many reforms that almost all governments, without any exception, botched. Many state governments did unbundle electricity boards into separate generation, transmission and distribution companies. State electricity regulatory commissions too were set up. But that’s where things stopped. There was no privatization or even the creation of an ecosystem where private players could enter the sector: State governments are simply dead against letting private firms and regulators set prices.
The result is that, on the one hand, governments have turned one state-owned entity into three in one stroke and, on the other hand, private participation in the power sector is missing. A half-baked reform has worsened the situation. In most cases state electricity boards are politically formidable: A combination of engineers, linesmen, and other staff unions can snuff the life out of any party at the hustings.
Till this issue is sorted out, tragedy will continue to play out: Citizens will no doubt get cheap power, but the gap between costs and what state- owned firms earn will continue to head skyward.
Why are state governments reluctant to carry out full-blooded power sector reforms? Tell us at firstname.lastname@example.org