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KAUTILYA
New
Light On Power
Karnataka's
new model: public-sector generation, private-sector distribution
By
Jairam Ramesh
When states innovate they rarely capture national headlines.
In recent days, the Karnataka Government has taken two major initiatives
in the power sector that have significance for the rest of the country.
First, it has entered into an agreement with the Infrastructure Development
and Finance Company (IDFC) for financing a 210 MW coal-based power project
of the state-owned Karnataka Power Corporation (KPC) at Raichur. Second,
it has cancelled a MoU entered into with a private consortium for developing
the Upper Krishna hydel power project at the Almatti and Narayanapur dams
and awarded the contract to the KPC. The power plant equipment supplier
for these projects will be BHEL which is a strong vote for indigenous
manufacturing and that belies the propaganda that reformers are anti-public
sector.
 The
IDFC accord is a breakthrough because it opens up the financing of power
projects by domestic financial institutions and links that financing with
reforms to be carried out by the borrower states. It is this link that
marks a watershed. The IDFC and a group of commercial banks will provide
Rs 500 crore of the project cost of Rs 640 crore. This agreement stipulates
a number of tough conditions that the state will have to fulfil within
a specified time schedule. The non-fulfilment of these conditions will
amount to default. For instance, the agreement commits the state to privatisation
of the distribution system and forces it to clean up the balance sheets
of the KPC and the Karnataka Power Transmission Corporation Ltd (KPTCL)
that transmits and distributes power. Detailed obligations of KPC and
KPTCL along with those of the Government are stipulated. If we can sign
such agreements with the World Bank, surely we can do so with our own
institutions.
IDFC, which
was conceived of and set up during P. Chidambaram's tenure as finance
minister in 1996-97, was established to commercialise private-sector infrastructure
projects. It has made an exception in financing a government-owned company
like KPC. But it is insisting that while KPC starts the project, it must
disinvest its stake after the project is completed. This is based on a
recognition that the public sector's great advantage lies in starting
power projects but it does not have the capability of sustaining such
projects commercially. Private companies, on the other hand, cannot bear
the huge risks involved in setting up power projects as we have seen to
our great cost in the past few years. But such companies can operate power
networks better simply because the work environment is superior and there
is no political interference.
PSU Exit
Essential: Thus, what Karnataka is putting into effect is a new model
of power development-public-sector generation and private-sector distribution,
with the public sector acting as a project promoter, developer and implementer
and exiting in the manner of a venture capitalist when the project is
up and ready. This exit is important because that is one way of generating
funds that can be ploughed back for further expansion.
As far as
the Upper Krishna hydel project is concerned, it is ironical that in one
of his previous incarnations as state power minister, Chief Minister S.M.
Krishna had approved the MoU with a private consortium in the mid-1990s.
That decision was taken when there was a lot of euphoria about private
investment in power-false hopes as it turned out. The private consortium
whose technical expertise was no match for KPC's had offered to develop
the 1,100 MW project at about Rs 4 crore a megawatt. When KPC offered
to develop this project at Rs 3 crore a megawatt and when financial institutions
evinced interest in supporting the bid, Krishna had no option but to rescind
his earlier decision. The fact that this project is part of a controversial
inter-state complex involving irrigation as well tipped the scales in
favour of a public-sector promoter. In any case, why should cheap hydel
sources be privatised? Upper Krishna power will cost less than Rs 2.50
a unit.
Karnataka
is sitting on another cheap hydel resource-the 270 MW Shivasamudram project
which will yield perhaps Rs 1.50-a-unit power. But the bitter Cauvery
dispute with Tamil Nadu is preventing the state from harnessing this potential.
The late P. Rangarajan Kumaramangalam had suggested that the Central government-owned
NHPC take up hydel projects in the Cauvery basin with a total capacity
of about 1,600 MW. Indeed, the most challenging task awaiting the two
states is the establishment of a Cauvery basin hydropower authority that
will develop projects that do not involve any consumptive use of river
water. This would be without prejudice to either state's case on the water-sharing
dispute that is presently before the Supreme Court. But whether they break
the shackles of the past and seize this opportunity remains to be seen.
(The
author is with the Congress party and is also the deputy chairman of the
Karnataka Planning Board. These are his personal views.)
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