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| May 22, 2000 | ||
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| POWER Tripping on Tariff Nine years after it cleared the Enron-Dabhol Power Corporation deal, Maharashtra finds that it cannot afford the highcost of buying power from the private producer By V.Shankar Aiyar
Now, nine years later, you could say the clock has come full circle. Particularly for those inherently sceptical of power-sector reforms. Last fortnight, in a path-breaking order, the Maharashtra Electricity Regulatory Commission (MERC) shot down a proposal for an 18.9 per cent hike in tariff, and allowed a hike of 6.5 per cent. What's more, it ordered MSEB to push through a time-bound programme for a series of measures. In effect, MERC has told MSEB that it just can't pass on the burden of its decisions and costs to the consumer without due process, whatever the compulsions. The compulsion: MSEB doesn't have money to pay for the power it is buying. In fact, MSEB's decision to go back to the MERC for a review its tariff hike proposal reinforces the fact that it simply doesn't have the financial muscle to sustain purchase of power from private producers like DPC. Consider the spike created by DPC's entry in 1999 into MSEB's grid. In 1999-2000 DPC supplied MSEB 3,700 million units (MUs), which constituted 24.6 per cent of the total power (15,001 MUs) MSEB purchased from outside sources but cost the board 45.04 per cent (Rs 1,531.03 crore) of its total purchase bill of Rs 3,399.25 crore. Translated it means MSEB bought DPC power at the rate of 413.79 paise per unit. This when it costs 124.94 paise per unit to generate its own power, when its average purchased power costs 226.53 paise and when another private producer, Tata Electric, is supplying power at the rate of 197.69 paise per unit. This year (2000-01) MSEB proposes to buy 4,200 MUs from DPC at Rs 1,998.60 crore, that is 475.86 paise per unit (MSEB estimates). This means it will cost MSEB 52.61 per cent of its purchase bill to buy 25.5 per cent of its total power purchase. The spike had its effect. MSEB found its proposal short-circuited at the MERC hearing which saw 87 objections. The MERC found MSEB wanting in its execution of the merit order despatch system (which means buying from the cheapest source first) and "disallowed Rs 409 crore in respect of generation and power purchase". Indeed, the MERC order forces MSEB to cut its purchase from DPC and the NTPC. In other words, the commission has found the MSEB proposing to buy higher cost power when cheaper power is available. Enron India chief Sanjay Bhatnagar doesn't quite agree that DPC power is expensive. "Look at the NTPC's combined cycle (gas and liquid) plant at Kayamkulam which is comparable to ours. Their power costs 439 paise per unit compared to our 413 paise per unit which will go down to 385 paise per unit when the second phase is operational. Secondly, the cost of crude per barrel shot up from $12 (Rs 516) to $32.50 (Rs 1,397.50). Older projects are bound to be cheaper. Among the new projects we are the cheapest." State Energy Minister Padamsinh Patil concurs. "We are paying higher for private power because there is no alternative. What is the solution? We are duty-bound to pay the return on investment. (In the case of DPC, MSEB is obliged to pay a fixed capacity charge of Rs 85 crore per month whether it buys power or not). We needed the power but couldn't pay for new generation capacities, hence the sector was opened up." MSEB Chairman Asoke Basak adds, "In fact, even with DPC supply we face a peak shortage of between 1,200 MW and 1,500 MW." Consumer activist Pradyumna Kaul, who intervened at the hearing, contests this vehemently. Kaul suggests that MSEB "fully back down DPC paying only fixed costs of Rs 1,020 crore (that is, committed capacity charge for 90 per cent PLF) and save Rs 978 crore (of the Rs 1,998 crore bill of 2000-01) of the high variable costs. We are confident MSEB can meet all its load requirement by using its own cheaper plant without having to draw from expensive DPC and NTPC in the current year. To start with, 850 MW of its own generation capacity is lying idle. Of this, 600 MW is from the 912 MW Uran gas-based plant which generates power at 87 paise per unit but is supplied gas for only 312 MW. Secondly, the peak load spike exists for only 106 hours in a year of 8,760 hours." Obviously, MSEB needs to manage its load better. And the MERC has echoed this in its order by introducing time-of-day metering (higher tariff for power drawn during peak hours as with std calls) for high-tension industrial consumers. MSEB has been directed to install the meters for all HT consumers by September 2000. To encourage the shift MERC has decided to give an incentive to HT consumers -- a rebate of 1 per cent of the energy bill and 1 per cent for improvement in the power factor. This, the commission states, will lure consumers to shift consumption to non-peak hours and even out the demand side curve.
Patil agrees that there is clearly scope for improvement. "We will look at savings, by buying power from DPC and other private producers only at peak time and pay fixed charges. There are some serious issues though. For instance, the capacity being added by DPC II. I am not making a political issue out of this but the previous government has been hasty in clearing the second phase. We had put the clearance of phase II on hold till we reviewed the situation. We would have re-assessed the capacity utilisation but now the state faces a financial burden. Of course, we are committed to take up other reforms like T&D losses, not as a compulsion or because the World Bank and the Power Finance Corporation mandate it, but in a positive sense." Basak too agrees that MSEB will only gain with reforms. "But these things cannot be done overnight. We need time and money. Take for instance the issue of T&D losses. Not all of it is theft or inefficient management as is generally believed. We have a real technical problem. The ratio of HT and LT has to be 1:1, whereas it is 1:2.4." This leads to nearly 15 per cent T&D loss as higher low tension leads to higher loss. MSEB could save around Rs 1,800 crore per year, but that, says Basak, "would need a one-time investment of Rs 2,500 crore". There is also the problem of recovering arrears. Like with banks, MSEB too is hampered by the legal process. Plus there is the issue of MSEB continuing to be an instrument of public policy (read political largesse). It's a tough call for any institution to undo history. Or a policy mis-match. After all, if the government had in 1991 used cost-to-consumer as the sole basis of inviting investments in generation instead of complex return-on-investment formulas, these issues would not have arisen. The policy should have also put the regulatory commissions in place to inculcate best practices that would have helped improve the health of SEBs. But Kaul says there is hope yet. "The MERC's order has been trail-blazing. It has proved it is up to the task and has set clear benchmarks." Perhaps under MERC's guidance MSEB could yet prove the Cassandras wrong. For instance, if it cuts T&D losses to 15 per cent and recovers 50 per cent of the arrears it could bring in over Rs 3,000 crore into the kitty. And that could perhaps help it fund generation capacities or even find DPC's power affordable. The clock could yet turn another round. |
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The
worst fears of the doomsayers seem to have come true. In 1991, Maharashtra
led the nation in the opening up of the power sector with the signing of the
Enron-led Dabhol Power Corporation (DPC) deal. The premise was that state
electricity boards were in no position to add generation capacity and thus
would be better off buying power from private producers and distributing it.
From 1991 till the DPC project was flagged off in 1999, every interest group
intervened to block the project citing the high costs and its implosive
impact on the Maharashtra State Electricity Board (MSEB) as reasons.