Telecom, Power And GATS

THIS year, the Inter-ministerial Conference of WTO in Cancun, Mexico, scheduled for September, is slated to take up the service issues for various sectors. The Generalised Agreement in Services (GATS) was negotiated as a part of the Uruguay round. It consists of on-going negotiations — both bilateral and multilateral — in which countries offer various sectoral commitments and make demands on others. This is the process that is continuing now, with the Telecom Agreement being the first that was reached (1998) in which 69 countries, accounting for 90 per cent of the total telecom market, agreed to open their telecom sector to competition. Currently, energy, water and other vital infrastructure sectors are under similar negotiations in WTO under the GATS framework.


In the telecom sector, India had given commitments for international and long distance calling to be open to competition by 2004. However, in actual practice, we had opened these sectors well before the committed dates. So at first sight, GATS may not seem to pose any special danger to us, given that the government is willing to go much further in opening our internal markets to foreign capital than what is being demanded of us. The danger of GATS is not that it is being used to open up our markets, but that it locks the changes currently being made permanently in place.

Let us return to the telecom example, held out as a showpiece for liberalisation. Broadly, the issues are that earlier the expansion of the network was being funded by the surplus of long distance and international calls. This enabled an expansion of the installed phones of more than 20 per cent per year. If our primary target is to increase the teledensity as it helps to spur other economic activities, then any measure that reduces the surplus poses a danger to this objective. The universal access levy is generating about Rs 1,300 crore as against the surplus that was about Rs 8,000 crore from long distance and international calls.

So introducing competition in long distance and international calls would immediately mean that either local call rates would have to be raised in order to maintain this surplus or the expansion of the network has to stop. With the widespread anger of the people against the raising of local call rates, Bharat Sanchar Nigam Limited (BSNL) and Mahanagar Telephone Nigam Limited (MTNL) have reduced the permitted increase allowed by the Telecom Regulatory Authority of India (TRAI) and are in the danger of losing all their surplus. The chickens of competition are now coming home to roost as the automatic corollary of competition in the profitable long distance sector are the rising local call rates.

We are not examining here the TRAI’s exercise in both inter-connection charges and raising the local call rates. It is now clear that under the TRAI’s current regime, the landline users will subsidies the cell phone users. It is widely recognised that landline services should be regarded as the critical one for considering the teledensity. This transferring of the burden of high costs of cell phone usage to the landline users must mark as one of the most absurd decisions of the TRAI. Similarly, even for raising local rates, instead of an across the board increase as the TRAI has done, high rates during peak hours and low rates during off peak hours would have spared the low end subscribers. Unfortunately, the TRAI has only helped the well- off consumers and worked against the interests of the low-end consumers and the goal of increasing the teledensity.


Coming back to the GATS, the telecom ‘reforms’ are now showing up the problem of long distance competition. If we now want to change course, the GATS agreement in telecom will not allow it. And this is what the GATS is all about. It is not so much about bringing about these changes, which are happening due to a wide variety of forces. The 1990s have seen an enormous pressure by international institutions such as the IMF and the World Bank to privatise the infrastructure. Quite often, it is posed as introducing competition. Once private capital enters the infrastructure sectors, it concentrates on cream skimming, talking away the more profitable part of the business and letting the rest to turn sick. At which point, the entire sector falls within the grasp of private, and often global, capital. Once this sector is opened to competition under the GATS, there is no way that the country can change back its policy. Thus, while other international forces help in stealing the horse, the GATS locks the stable doors permanently, ensuring that it cannot return!


With this lesson from the telecom sector, let us take a look at what is now being proposed for energy services. The energy services proposals are all geared to the aim of “unbundling” of the power sector, privatisation and allowing trade in electricity. The scope of US proposals is very large and they encompass almost every activity connected to the energy sector. The US is proposing that all these should be brought under the GATS except the trade in electricity outside of borders — cross border flows of electricity due to connecting grids.

If we look at larger issues in power and telecom for developing countries, they are primarily how to allow people a greater access to these vital infrastructures at affordable costs. For this, the state undertook its development virtually without profits, as a part of its responsibility for a balanced economic development of the country. It recognised that the demand for infrastructure takes place only when it reaches the people. Cross subsidies were also a part of providing low cost access to the majority of population; this was the reason for charging more from industry or commercial users for electricity and higher rates from long distance callers.

The Electricity Act that the parliament has recently passed, despite opposition from the Left, incorporates all the demands that the US is making of India. We have already accepted a California style reform of the power sector with the BJP and the Congress acting in tandem. We have now “open access,” energy trade, and removal of cross-subsidies — all as a part of the act.


As a tailpiece, it may be interesting to know that behind the US’s energy services demands stood the Enron. This multinational was the one who was demanding an opening of all markets for their trade in energy. The disaster of Enron may have stopped much of the deregulation and liberalisation in the US. For the rest of the world, the Enron demands still continue as the US demands in GATS/WTO, with the full negotiating might of the US behind it.

As in telecom, we have accepted the US demands on energy services well before the GATS negotiations. The danger of GATS therefore does not lie in forcing us to do things that we are unwilling to do but making its reversal difficult if not impossible. It is permanently giving away our right to chart our own course (or change our course) in these vital sectors. This is why the GATS negotiations are important for us. We must ensure that the government, which has introduced totally retrogressive changes in the sector, does not also sign away our right to change back these policies in the future.

25th May 2003