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VIEWPOINT: POLITICALLY CORRECT
Black-out Policies
The governments
in India are stifling private participation in the power sector
By P. Chidambaram
Soon
after the Russian Revolution, the Soviet Union declared that education
and electricity-the two "Es"-were the two eyes of the country.
India is different. And that is why we turn a blind eye to both education
and electricity. Nothing seems to be working on the electricity front.
If mistakes were made in the early 1990s, that was because of lack of
experience and knowledge. If mistakes are made today, it is because of
lack of integrity or competence or both. This has nothing to do with the
government of the day or the party in power. It is a criticism of the
rotten system of governance that passes as "democratic form of government".
Electricity is the driving force behind economic
progress. There is hardly any sector-or any person-that can do without
electricity. Only rain-fed farming can perhaps do without electricity,
but even that farmer wants electricity for his home and for his proposed
bore-well. Yet there are people in responsible positions who will tell
you that we do not need more electricity. A former chairman of a state
electricity board (SEB)-a capable and honest officer-once told me solemnly
that his state was nearly self-sufficient in electricity and, therefore,
he did not wish to support proposals for private-sector generation of
electricity. The Maharashtra SEB has said it does not want to buy electricity
from Dabhol Power Company's Phase II plant because it has no use for that
electricity. Taking the cake is Karnataka, where under the guise of a
new policy, elaborate rules have been made which will positively discourage
any independent power producer (IPP). The authors-and advisers-of the
policy maintain, privately, that all power generation should remain in
the hands of the government.
Two weeks ago, Finance Minister Yashwant Sinha
told an international gathering at Hong Kong that India needs and desires
to set up over 1,00,000 mw of additional capacity. At present, we have
capacity to produce about 85,000 mw. Sinha's target is an ambitious one
and will require about Rs 4,00,000 crore. If all of this additional capacity
will be the responsibility of the public sector, then obviously Sinha's
plans will remain a pipe-dream. The case for private-sector participation
does not require much argument, even the communist parties accept the
need for IPPs. Virtually every state government has a policy document,
which promises red-carpet treatment for IPPs. But the ground reality is
different.
 In
its issue of May 23, 2001, The Economic Times gave a status report on
eight projects. Their status varies from "bidding stage" to
"awaiting escrow" to "shelved". In fact, the report
is an understatement of the actual status. Of the eight projects, at least
three are dead. The remaining are unlikely to move forward, and even if
one or two show some progress the first unit of electricity will not be
available before 2005.
All the IPPs in Madhya Pradesh are involved
in litigation. The state Government promised escrow agreements for four
projects to enable them to achieve financial closure, but reversed its
stand and said, "achieve financial closure first and then we will
sign the escrow agreement". The Karnataka Government is also involved
in litigation with IPPs. The state suffered two adverse judgements, yet
it will not amend its so-called policies. Tamil Nadu is no better, and
with the change of government one can expect that IPPs will be required
to renegotiate the terms of participation.
Maharashtra's famous brawl with Enron has put
paid to any expectations that IPPs will invest in that state in the future.
The real reason behind the dispute is that the Maharashtra SEB, like its
counterparts in others states, is broke. It has no money and takes the
absurd position that it does not need the electricity.
The mess in the power sector started with the
"counter-guarantee" policy of the P.V. Narasimha Rao government.
It was compounded by the then minister of power P.R. Kumaramangalam's
curious letter to state governments to "prioritise" projects
on least-tariff criteria. Meanwhile, the SEBs continued to bleed. Their
balance sheets are awash in red and no one will put his money to produce
electricity on the strength of an SEB's balance sheet. The governments-Central
and states-refuse to wake up to this simple truth.
In the meantime, let us continue to delude ourselves
that God is in heaven and all's well with the world. If God wished to
make a home in India, he would have to bring with him a voltage stabiliser,
a ups, a genset and an inverter and eventually set up a captive power
plant. Ask Dr R.K. Pachauri of TERI. He will tell you that these accessories
are not signs of industrial progress, but a severe indictment of our policies
on electricity.
(The author is a former Indian
finance minister.)
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