The power of choice truly empowers the consumer. Unfortunately, in the power sector, this continues to be a distant dream—you are locked into a distribution service provider, regardless of service provided (tariffs charged and quality of power—breakdowns et al). This is unlike the case of other infrastructure services such as telecom and even aviation. The question is how far are we from such a goal? A recent report prepared by the Energy Research Institute for the Competition Commission of India argues along these lines and says consumers should be able to choose who they buy electricity from. This is what “open access” in distribution would translate into. But competition is unlikely to develop with ease. Especially since the chances of private investment in the near or even medium term are low, unless the government gets serious about lowering the risks that a private distribution player faces.
Technically speaking, the Electricity Act 2003 allows a Tata Power to enter a Reliance Energy zone, but it won’t, because it may not find it worth its while.
Open access amounts to the delinking of ownership of power distribution assets (networks) from the business of power distribution. It promotes competition by allowing multiple distribution companies to deliver the power to the final consumer. It means the consumer can switch from a Reliance Energy to a Tata Power. The Prime Minister recently emphasized on this quite clearly.
What would such a situation require? First, adequacy of power supply. Second, viability of asset ownership—that is rewards commensurate with risk. And third, a developed market.
Let’s start with the second issue—that’s viability. The problem is that the risk is too high for the sector to be attractive to private investors. And that’s primarily on account of poor collection of payments and theft of power—distribution losses are more than 30%. Which means of every Re1 invested in power distribution, less than 70 paise get recovered.
Here, the crux of the matter is that the political sensitivity (read electoral imperatives) involved in shutting off power supply to non-paying consumers is just about too high. The same applies to dealing with the rampant illegal drawing of power from high-tension lines in slum areas. As a private distribution player in Delhi said some time back, “Theft reduction isn’t easy, our people are tied up and beaten when they go to cut off the power of those caught stealing power.”
Unless the legacy issue of politically-motivated state influence is addressed, the chances for the market maturing are dismal. Across the country, barring the case of Delhi, Orissa, Mumbai and Ahmedabad, there’s no private-sector play happening. Ownership of assets lies primarily in the hands of the states, which have never treated distribution as a commercial business. Instead of perpetuating such an ill-afforded legacy, what the state governments need is an aggressive programme that brings new technologies, and professional management of existing distribution assets as well as extensive monitoring for minimizing loss of a scarce resource that’s crucial for economic activity. Simultaneously, they need to push for capacity addition, till such time that they can provide the enabling market environment for private players to enter the sector.
Sadly, as an estimate puts it, the pace of reduction of distribution losses over the past three years was a mere 5%, against the official target of 9% per annum. The Central government clearly needs to catalyse state-level distribution reforms to correct the pace. So, it’s good the former is restructuring the accelerated power development and reform programme into an aggressive distribution reform package. Else, the distortions in distribution will dampen new investment in power generation. This could cost us in terms of economic growth.