Backdoor Entry Of Failed Privatisation

People’s Democracy

Organ of the Communist Party of India (Marxist)


No. 18

April 30,

Ultra Mega Power Project Manoeuvre

Entry Of Failed Privatisation




power scene is becoming curios and curioser. Just as the power privatisation
dreams of the government has foundered on the cruel rock of reality – with the
Orissa Regulator cancelling the private distribution company’s licenses –
the power ministry is busy smuggling even more privatisation under the guise of
“ultra mega” power projects. The terms and conditions of the ultra mega
power projects demand that any state taking power from ultra mega projects will
be forced to privatise distribution of electricity for all towns with population
of more than 1 million! All this is being done secretively, with this clause
remaining secret in all the documents regarding ultra mega projects.


privatisation of electricity started with Orissa “reforms”, more as a
consequence of the Orissa government taking a $450 million World Bank loan in
which this was a pre-condition. As per this agreement, the Board’s activities
were split in three and “unbundled” –– distribution, transmission
and generation were made into independent activities. An “independent”
State Regulatory Authority was formed. The distribution side was hived off to
form four Regional Distribution Companies (Distcos), while the transmission side
was constituted as a State Power Grid Corporation (Gridco). Apart from Gridco
and Orissa Hydel Power Corporation, all other entities were privatised. The four
distribution companies were privatised in 1999 by transferring 51 per cent of
the share of these companies to private companies. Three of them were taken over
by BSES (now Reliance Energy), while the fourth (CESCO) was transferred to AES
Corporation of US who was also the 49 per cent owners of OPGC generating plant.
Soon after the privatisation of distribution, AES decided to run away and the
Orissa government had to take over AES.




record of the privatised companies make dismal recording. A high level committee
was set up after the collapse of CESCO and the withdrawal of AES headed by Sovan
Kunango, IAS (Retd). The Kunango Committee Report, submitted in October 2001,
was a damming indictment of both the privatisation process and the private
companies. Undeterred by any of this, the power ministry, both under the earlier
NDA and now the UPA government, has been unabashed votary of privatisation as
the only panacea for the power sector. The Delhi privatisation was the result of
this mindset and it is not surprising that it is also running into equally rough

Orissa Regulatory Commission had taken up various issues with Reliance Energy.
Most of it was that Reliance was unwilling to commit any finances to the
Distco’s and was also not paying Gridco’s bill. Gridco’s
outstanding as of June 30, 2005 was an astronomical Rs 1,814 crore! In other
words, it was Gridco and the state of Orissa that was bankrolling Reliance
Energy. Instead of private sector taking over state’s liabilities, in reality
it was the state underwriting the private sector’s liabilities
. After
numerous notices and orders, the Orissa regulator finally ran out of patience.
In an order dated January 27, 2006, they cancelled Reliance Energy’s licenses.
Of course, Reliance has appealed to the Electricity Tribunal, where the matter
is being heard. But the brutal fact that the power ministry needs to accept is
that their neo-liberal vision of booming private power and a sick state sector
has completely failed.


state sector went into a crisis after 50 years, particularly after 1991 when the
government decided it had to be made sick. The private sector seems to have
achieved this in a scant matter of five years. With Orissa showing the way,
Delhi may not be far behind. Already, the Delhi citizens have given notice they
will not take lying down the continuous raising of electricity prices while the
power cuts increase and reliability worsens. The cosy relationship between the
Delhi government, the Regulator and the private companies will come under
tension as Delhi citizens increasingly show their ire. Therefore, to again hawk
the discredited privatisation of distribution under the guise of mega power
projects makes very little sense today.




did this coupling of privatisation of distribution and ultra mega power projects
take place? This started in 1999 when Rangarajan Kumaramangalam mooted the
concept of mega power projects. The power ministry had then proposed that in
order to draw power from the mega power project, the states would have to agree
to privatise their distribution. This notification was a part of the larger
privatisation drive then. However, with the collapse of the mega power projects,
nobody had paid any attention to this provision of mega power projects. However,
when ultra mega power projects were mooted, this provision is now being used as
a backdoor entry for the discredited privatisation measures that have already
failed in Orissa and in Delhi.


Southern Regional Board and other SEBs have protested to the ministry that there
is no logic of putting forward a condition of privatisation of distribution when
the scheme of mega power projects is for generation. As the Southern Board
stated that such a linkage does not help in quick mega capacity additions and
will only impede addition of generation. They had argued that if granting of
mega power projects depends on this pre-condition, then the projects in which
state entities are partners, such as TNEB for Ennore etc., will not get mega
project status and it will hamper their efforts to add to generation.


ministry’s response gives the game away: the cabinet has approved of these
conditions in order to get the confidence of the financial institutions and
project developers. Interestingly enough, the project developers are not even
aware of this specific condition: it does not figure in the Power Finance
Corporation (PFC) website or in any of the PFC documents. As the focal point of
the ultra mega projects is the PFC, who neither knows nor has included this in
their terms of reference for the projects, this condition is not coming from the
developers. Unless there are secret confabulations going on between developers
and the power ministry. So the only party that could impose such conditions are
the financial institutions such as World Bank, ADB, etc.


is difficult to believe that the government is following such a policy at the
behest of the financial institutions; India is not a small country that is
forced to do what the FI’s tell it so. It appears that having failed in its
attempts to force the states to undertake privatisation, the centre is now
taking a different tack. After all, power sector is a joint sector under the
constitution and therefore the centre cannot force the states to do what they do
not want. The attempt therefore was first to deny them funds for their power
programs if they did not accept privatisation. Having failed there, they now
want to deny states additional power coming from the mega and ultra mega
projects unless they accept the privatisation of distribution. We understand
that some states have signed similar agreements for power from projects such as
Sipat. It will be interesting to also check that whether Orissa, Maharashtra,
Madhya Pradesh and others states which are proposing to host the ultra mega
projects have signed similar agreements. It will be particularly interesting if
Orissa again agrees to privatise its distribution so promptly after the failure
of its current privatisation experiment.




other part of the mega power project (or ultra mega project) schemes is that
they are sought to be done almost exclusively as central-private partnership and
keeping out the states. The states will slowly have the distribution and
transmission side of the sector with the centre emerging as one large
Independent Power Producer. 
Already NTPC plays this role. The net result is that while the states are
sinking deeper and deeper into crisis, NTPC is making hefty profits: it has made
more than Rs 5,000 crore profits this year also. If the ultra mega projects
comes up within this kind of architecture, the states will become even more
dependent on the centre and will be forced to accept whatever diktat that the
centre hands out. Including privatisation of distribution.


proposal of privatisation of distribution as suggested by the centre under the
mega power scheme has another even more perverse side. Earlier, the loss making
rural areas were sought to be clubbed with the profit making urban sector so as
to have a balance. The current scheme proposed under the mega power project
guise destroys even this slender balance.


attempt to smuggle in privatisation of distribution not only smacks of a bad
policy as already shown in Orissa and Delhi but also a dishonest one. No such
policy, which affects all people in this country, should be conducted in such
secrecy. The government must first put this issue to a public debate before
trying to blackmail the states with ultra mega projects. 


problem with the power sector has always been that the centre has no
responsibility for actually providing electricity. So it is easy for it lay down
the law to the states as to how this sector should be run. With the centre
emerging also as a major IPP, its vision is even more blinkered: that of a
generator. This lack of vision is coupled with the neo-liberal fundamentalism
within the highest levels of the government, which believes that everything that
shines is private. If the NDA paid a heavy price for its belief of a shining
private India being synonymous with a shining India, the UPA is not going to be
forgiven either.