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Vol.
XXVIII No. 15
April 11,
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N
K Singh Committees Report on the Power Sector:
World
Bank-IMF Wine In BJP Bottle
Prabir
Purkayastha
ONE
of the many problems with the current NDA government is its insistence that
India must shine at all costs, even if it means sweeping under the carpet all
evidence of failure. The power sector policies that the BJP-led NDA government
is following is a classic case in question. Not only have the privatisation
mantra failed in Orissa, the Kanungo Committee has openly admitted that private
players neither improved performance nor brought capital or expertise into the
running of the distribution companies. Unbundling has failed in California with
now the experts also admitting the difficulty of separating generation,
transmission and distribution. Yet, the latest report the N K Sing
Committees Report of the Task Force on Power Sector Investments and Reforms
is a dreary rehash of the same failed mantra of providing additional
incentives to private players and arguing how automatically it will help to
improve performance of the sector. It is evident that the ideology of
privatisation is so deep seated in the BJP-led NDA government that any contrary
evidence cannot even be mentioned in a report on the sector.
PROMOTING
A RENTIER
ECONOMY
The
sectors policies are already dominated by the need of attracting private
capital into power generation sector: manufacturing of equipment for the sector
is now actively discouraged. The duties have been lowered to the extent that it
is now cheaper to buy equipment abroad then buy from here; there is now negative
protection for the power sector equipment manufacturers. The N K Singh
Committees Report goes one step further and suggests that we should give
similar duty structure to imported coal and naphtha, the fuels for the power
sector. Instead of focussing on how to make the sector efficient and viable, the
focus is on more concessions to investors in generation. Apart from lowering
duties on equipment and fuels, there is a series of recommendations by which not
only can the private owners not pay taxes on income or dividend, they can offset
losses from other areas using their investments here. If this were not enough, N
K Singhs Committee further recommends measures for banking and financial
institutions that endangers their safety and violates the recommendations of the
committees set up to oversee the banking sector. Clearly, N K Singh
Committees recommendations are one more step in promoting a rentier
economy as distinct from a productive manufacturing one.
The
earlier holistic view of the power sector where the power policies were a part
of a larger energy and industrial policy is now given up with the vision that if
the government takes care of the private investor, the market will take care of
the rest! No wonder the last decade has seen the cost of electricity almost
tripling: from Rs 1.09 in 90-91 to Rs 3.04 for 2000-01. Even the small amount of
private power injected into the system has led to a major escalation in price as
central generators such as NTPC have snapped up the incentives created for
private capital. The net result has been the deepening of the crisis of the SEBs,
who despite improving their plant performance the PLF of the SEBs is far
higher today than a decade earlier their financial viability has eroded even
further.
ALL
ROUND FAILURE
What
are the key features of the N K Singh Committees Report? While the task force
was set up for only finding the right climate for promoting investments, it
seems to have taken on itself of generating a comprehensive set of
recommendations for the reform of the sector. While the idea that any
recommendations of an investment climate necessarily needs to look at the sector
as a whole is not wrong, the problem arises when there is no attempt to look
critically at the last 10 years of reforms either in India or elsewhere. The
common problem with the private sector entry worldwide is that it has resulted
in the cost of electricity rising well beyond what the people can pay. It has
led to large-scale resistance in various countries. Secondly, fragmenting the
sector unbundling of generation, transmission and distribution and
creating a market for power has not helped the small consumer. The markets have
tended to become dysfunctional with power speculators cornering the market and
holding the consumers to ransom. Even the World Bank has started to discuss the
problems with private capital in the power sector and conceded there may be some
benefits to public ownership here. Specifically, the results of reforms of
privatisation of infrastructure have shown that none of the benefits that they
were supposed to bring have materialised; the critics have been proved right. In
country after country private power has spelled anarchy and prohibitive costs.
The failure of companies such as Enron who were such a powerful force in the
restructuring of the sector, has also led to slowing down of these reforms.
Competition and power markets are continuing in the advanced countries, but it
is taking place at the margins. The overwhelming bulk of power there is still
produced and distributed by vertically integrated monopolies. It is in the
developing countries that the mantra of the market is being trotted out as an
universal goal. This brings to mind what one of the leading power engineers told
a visiting team of foreign experts, Can you please tell us why we
should do what you are saying and not what you are doing?
DANGEROUS
RECOMMENDATIONS
However,
the problems with the N K Singh Committees Report go far beyond its not
examining the sector reforms critically and offering various tax breaks. The
Committee has recommended virtually a break up of NTPC in smaller regional
corporations, suggested unbundling of all SEBs, worked out a tariff policy to
discourage what it calls cross-subsidies and also impinged on the powers of the
regulatory commissions. We will take up these issues one by one.
The
break up of NTPC should not be seen as a simple administrative measure of
creating smaller corporations out of one large one. The key point here is that
if NTPC is to be privatised, it needs to be broken up. The private players do
not have the capital to buy up NTPC as a whole, so any move to privatise NTPC
pre-supposes its break up. This is the end objective, otherwise the argument of
why NTPC which is running well, generating profits and has put in about 10,000
MWs in the last 10 years when the private sector has only put in 4,500 MW
including Enron should be broken up remains a mystery. The plea for this break
up is that otherwise NTPC would acquire too high a market power! Considering
that this sector is highly regulated and therefore monopoly pricing is not
possible this is a bogus argument. And this from a government that has rendered
MRTP completely toothless and failed to bring in anti-monopoly legislation.
The
other major problem with the N K Singh Committees Report is under the guise
of drafting a tariff policy, it has virtually drafted tariff orders and thereby
entered the jurisdiction of the Central and State Regulatory Commissions. Under
the Electricity Act, the government has to make the tariff policy. Presumably, a
policy is to set in the broad directions of what has to be done and should leave
out the exact working of this to the Regulatory Commissions. The N K Singh
Committee does the reverse. The one area that the country requires a policy is
how to treat different fuels in terms of tariffs and how to see that rural users
get reasonable tariffs. Instead, the fuel policy is left to its current anarchy
and the rural users are penalised due to what the Singh Committee terms as
removal of cross-subsidies.
The
issue of fuel prices has a major impact on the power sector. At present, Indian
coal, with the prices set by the government, costs more than imported coal if we
take the heating value of coal into account. Similarly, naphtha prices are set
much lower (due to lower duties) than equivalent fuels such as diesel when both
in heating value and in usage are similar. Gas prices are in an even bigger
mess: the Administered Price Mechanism for gas makes gas available at half the
price to some power generators and fertiliser plants while others have to pay
twice the price. All this makes tariff fixing a major problem. The fiasco of
promoting naphtha and LNG for power generation has become clear with the price
of fuel for such power becoming two to three times that of domestic coal. The N
K Singh Report has little to say on all this in terms of a policy except arguing
in favour of reduction of duties for imported fuels. It has nothing to offer on
working out a unified energy policy, which will help the power sector. And it is
not that we did not have such an energy policy, it is that the market mantra has
gutted this policy as it has a rational transport policy.
The
so-called cross subsidy agricultural tariffs has been one of the biggest hoaxes
in the power sector. It is now clear that not only is agricultural consumption
inflated grossly, it also takes only off-peak power, which should not be priced
at the same level as peak power. The addition to the installed capacity is
largely to meet peaking requirement and this should attract higher tariffs than
off-peak power. If agriculture does not draw off-peak power the units would have
to be shut down every day, leading to large losses. Again, such a rational
discussion is beyond a Committee, whose task apparently is to offer incentives
and a stable high profit regime for investors.
One
of the underlying assumptions of the N K Singh Report is that we need another
100,000 MWs to be added by 2012, perhaps to make India shine even better. This
need for 100,000s MW has been a constant refrain for the last 15 years and is
one of the causes for offering ruinous incentives to companies such as Enron.
Unfortunately, the fixation of the government with this inflated demand
prediction and using it to justify high cost power still continues. The first
time of offering such incentives to private capital led to the tragedy of Enron;
this time around it is going to be an even bigger tragedy. Obviously, the BJP,
with its fascination for Enron kind of deals, has made up its mind to lead India
down this ruinous path.
