Energy Administration: Why the current mess and the way out by V. P. Raja


This video is of the lecture delivered by Mr. D. M. Sukthankar at a seminar titled National Energy Policy Seminar 2015 (NEPS2015) organized by Urja Prabodhan Kendra (UPK) in the auditorium of SPJIMR (S P Jain Institute of Management and Research) in Mumbai on 5th August, 2015. You can get more information about the seminar – program, information about the speakers, PPT presentations used by the speakers, photos, and all the other videos – at http://www.prashantkarhade.com/neps2015.

This video is part of a webinar created by Prashant Karhade (CTO of Cenergy MaxPower Pvt. Ltd who blogs on sustainability) and Dr. Prasanna Karhade (Assistant Professor, HKUST Business School). You can find all the other videos of the webinar at http://prashantkarhade.com/neps-2015-videos/

Mr. V. P. Raja is an IAS Officer belonging to the 1974 Maharashtra cadre. He was Chairman of Maharashtra Electricity Regulators Commission (MERC) from 2008 to 2013 and also concurrently Chairman of Expert Appraisal Committee (Thermal Projects and Coal Mining), Ministry of Environment and Forest, Government of India. Prior to that, he was Principal Advisor to Department of Atomic Energy, Government of India.

Mr. V. P. Raja talked about energy administration. I used a lot of information from his talk while writing an article on the electricity situation in Maharashtra. I elaborated on it further and talked the problems, solutions, and the challenges.

MSEDCL, which provides the last mile connectivity and distributes the electricity to the end consumers, has around 2 crore consumers in Maharashtra and revenues of around Rs.60,000 crores! Out of these, the top 2,500 consumers contribute approximately 41% of MSEDCL’s revenues. That’s a mind-blowing statistic! Agricultural consumers, on the other hand, consume 26% of the electricity distributed by MSEDCL, but account for only 3% of the revenues. And that is if they pay, which many don’t. Again, that’s a mind-blowing statistic!

But there are good reasons why agricultural consumers should be given electricity at subsidized rates. India has always been and still is an agricultural country. It would be incredibly stupid to lose this self-reliance, and therefore we have to support our farmers. If we need to give them electricity at highly subsidized rate to make that happen, then so be it.

While it is abundantly clear that we need to support our farmers and give them electricity at subsidized rates, the question is how much electricity should be provided and at what rate? That is the question.

Maharashtra government gives Rs.6,000 of direct subsidies to farmers. But it also gives Rs.8,000 crores of indirect subsidies, where the consumers paying higher tariff subsidize the ones who are paying lower tariff. So the total subsidies come to a staggering Rs.14,000 crores! This amount is just over 23%. So, 23% of the revenues of the largest SEB in India come from subsidies.

Although you will hear MSEB and government officials saying that these subsidies are going to farmers, they are not going to all farmers; these subsidies are primarily going to farmers in eight districts: Pune, Baramati, Satara, Sangli, Kolhapur, Ahmednagar, Solapur, and Jalgaon. So the subsidies are going to farmers in Western Maharashtra and Solapur.

Now if you look at what crops are grown in these districts, you will find that these districts grow cash crops, sugarcane being the most important of them without a shred of doubt. So in essence, the subsidies are going to the rich farmers, the semi-feudal rural elite of Maharashtra. If you do a study of the backgrounds of all the past and present MLAs of Maharashtra, you will find that many of them come from these very districts!

That’s no coincidence. It isn’t much of a surprise either. The people who have been in power in Maharashtra come from these districts. They have a direct or indirect involvement in the production of these cash crops. Even if they are not involved in any way, the ones who are involved are the ones who have brought them to power and are keeping them there. So by creating the present system, the people in power have been protecting their own interests and/or the interests of their benefactors. And no person in power will pass a law against their own interests. That is the political economy and that is the crux of all the problems that plague the electricity sector of Maharashtra.

However, this isn’t something that is specific to Maharashtra. What is true of Maharashtra is equally true of all other states. The specifics might be different – the class of the people, the districts that they belong to, the crops that they are growing, the schemes that they have deployed – but the basic principle is the same.

Economics talks about two very important concepts: perfect competition and perfect monopoly. Perfect competition achieves allocative efficiency and ensures maximum benefit to the consumers. Perfect monopoly, on the other hand, ensures maximum benefit to the producers, suppliers, and investors since there is no competition at all. Needless to say, perfect competition and perfect monopoly are at the two opposite ends of a spectrum. Producers, suppliers, and investors do not like perfect competition; in fact, they hate it and always try to get to the other end of the spectrum.

So, the political class, in rhetoric, will always talk about perfect competition to please the masses. However, in action, they will always do everything that they can to get themselves and their benefactors to the other end of spectrum, either by creating sufficient loopholes in the system or by simply breaking the laws. Carl Marx famously said that “governments have been and will continue to be an executive committee of the vested interest in the society”. Sadly, he has been proven right.

A shining example of the political class trying to please the masses and going a step further by enacting a law is the Electricity Act 2003. It encourages competition by giving every consumer of electricity the right to also become a producer of electricity, if he chooses to do so. The guiding principle behind this is to increase competition and bring down tariffs in the long run. Therefore, the Government of India (GoI) was lauded when they enacted this Act, and rightly so.

The Act also gives every consumer (consuming more than 1 MW) the right to Open Access (OA). In concept, OA is very simple to understand. A generator is allowed to use the existing electrical grid to supply electricity to any eligible consumer at a mutually agreed price. All he has to do is pay “wheeling charges” to the owner of the grid. It is very similar to a car owner paying toll to the entity that has built the road and is maintaining it. OA is absolutely crucial for competition. But do you think MSEDCL will allow any company to use OA and supply electricity to its top 2,500 consumers who contribute 41% of their revenues? If you think the answer to that question is a “yes”, then you are living in a fool’s paradise. MSEDCL will never allow a third party to supply electricity to any of its top 2,500 consumers. Heck, they won’t even allow the consumers themselves to setup the power plants! Unless of course, the people in power want, and therefore allow, this to happen. You can call this “discriminatory OA” which happens every once in a while. A few people have got OA in the past and a few will get in the future as well, but only if they go through “the proper channels” and make “the proper deals”, if you know what I mean. Non-discriminatory OA just does not happen in Maharashtra!

And it will never happen unless cross-subsidy is reduced, which is what the Electricity Act 2003 advocates. It says that the cross-subsidy should not exceed 20%. What that means is this: if MSEDCL’s average cost of supply is say Rs.5, then all the tariffs must be between Rs.4 and Rs.6. Maharashtra is probably farthest from achieving this goal since the highest tariff is close Rs.20 (for advertisers and hoardings) while the lowest is close to Rs.2 (for agricultural consumers and the poor people in urban slums). None of the other states have achieved it either, although the disparity might not be as great as in Maharashtra. And needless to say, complete elimination of cross-subsidies, in today’s scenario, looks simply impossible!

He concluded by saying that the price that we have to pay for the freedom that democracy gives us is eternal vigilance.

Add Comment

captcha

Please enter the CAPTCHA text