ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
-A A +A

Incomplete Story of the Political Economy of the Power Sector

Tejal Kanitkar (tejalk@nias.res.in) is with the Energy and Environment Programme, National Institute of Advanced Studies, Bengaluru.

Mapping Power: The Political Economy of Electricity in India’s States edited by Navroz K Dubash, Sunila S Kale and Ranjit Bharvirkar, New Delhi: Oxford University Press, 2018; pp 400, 1,195.

The electricity sector in India has witnessed a lot of changes in the last three decades. As part of the process of economic liberalisation that began in 1991, the power sector was one of the first sectors of the economy to be “reformed.” The thrust of these reforms was to financially and institutionally restructure the power sector to end state monopoly by introducing private generators and distributors of electricity. Acc­ording to the World Bank, the provision of subsidies, operational inefficiencies, and technical and commercial losses in the sector were a result of state ownership and consequent political interference (World Bank 1991). And so, the state electricity boards that were at the forefront of building infrastructure and expanding access to electricity across the country in an earlier era were “un­bundled,” corporatised, and brought ­under the quasi-judicial oversight of a “depoliticised” independent regulator.

The book Mapping Power: The Political Economy of Electricity in India’s States, undertakes the important task of evaluating what happened of the ­reforms 30 years after they were int­roduced in the sector. The book provides detailed documentation of the experience of 15 states in the country over a period of 30 years. It is an arduous ­endeavour considering that the implementation as well as impacts have been different across states despite the incre­asing encroachment of the central government in a sector that is on the concurrent list. It presents interesting res­ults as well that point to an overall inability of any state to implement the full set of prescribed reforms, or the failure of reforms after they were implemented, which naturally leads to the question of why we see these outcomes.

Before one undertakes the task of ans­wering this question, it is necessary to review the purported claims of the ­reforms, given that there is much more political and technical literature available today, apart from the benefit of hindsight. The book however uncritically ­accepts the claims made to justify the nature of reforms that were implemented in the sector. This is akin to accep­ting, if not creating, a strawman and then proceeding to destroy it, that too only partially.

Lack of Fundamental Critique

The authors at the outset acknowledge the persistent old problems of losses, debt, and lack of access to electricity “despite several generations of reform efforts” (p 1). This stark finding itself should alert one to problems much more fundamental to the basis of the reforms themselves than to the manner of their implementation. However, the ­authors distance themselves from any engagement on this count, focusing doggedly on the state-level implementation of reforms and its faults. Much of the literature critical of the reforms from that time has been ignored, presenting only a simplistic binary of pro-reform lobbies and anti-reform groups advocating dec­entralisation (p 5). This is far from the truth. For example, the arguments of power sector trade unions throughout the period of reforms find no favour in the larger narrative of the book, alth­ough their role in opposing the reforms is mentioned in some chapters. Trade unions are by no means non-partisan, but then neither are those advocating liberalisation in the sector (then and now) and herein lies my fundamental criticism of the work presented in the book.

The “politics” in the book oscillates bet­ween two positions, namely “popu­lism” and “pragmatism.” The former refers to pro-subsidy positions of political parties and the latter to pro-reform positions. There is no room for ideology in the discussion. From the left to the right, everyone is classified into these functional categories of political praxis only. And this is the basis on which states are then evaluated on their performance. Reducing the problem to such a binary then makes for some glaring misses of what has happened in the sector.

While the authors acknowledge that the plans to separate and privatise the retail side of the power sector, that is, the electricity distribution companies (DISCOMs) have not materialised in most states, they fail to recognise that this was a pipe dream to begin with. It is expensive to supply power to rural consumers and agricultural pumpsets scattered across the countryside and even more difficult to recover the full cost of supply from these consumers. There was bound to be cherry-picking in the distribution segment, and this is what happened. Only, Mumbai and Delhi, both cities without any agricultural consumption and a large proportion of commercial and industrial consumers, and the state of Odisha saw reforms reach the stage of privatisation. All three trysts with privatisation have been failures of various degrees and in none of the three cases could costs to consumers be red­u­ced. While the chapters on Delhi (p 73) and Odisha (p 196) acknowledge this, the problem is attributed to the political circumstances of the respective states and not to the nature of the reform beast itself.

The authors assume that power purchase costs are high because of DISCOM inefficiency and try to find the reasons for this in state government failure to implement reforms. In fact, costs have continuously risen because of the misplaced agenda of introducing markets in a sector where they would not work. On the one hand, generators (both conventional and renewable) are rapidly bec­o­ming non-performing assets of public sector banks, and on the other, the DISCOMs are being systematically weake­ned in order to save private power generators and National Thermal Power Corporation (NTPC) from losses. The politics that the authors ­refuse to engage with is that of questioning the neo-liberal assumption that markets will somehow magically infuse efficiency into the sector.

Leaving planning to markets has meant that at a time of power shortage, some independent power producers (IPPs) thought to earn extra income by not signing agreements with DISCOMs and selling electricity in day-ahead markets. As installed capacity increased and power demand did not, the dreams of earning windfall profits have crashed. These IPPs are now unable to recover their capital expenditure and repay debts to public sector banks that had forwarded loans to them based on market speculations alone (Chandrasekhar 2018). On the other hand, to protect other generators who have long-term power purchase agreements (PPAs) with DISCOMs from a similar crash due to demand stagnation, the DISCOMs are required to pay a two-part tariff to the generators. This means that the state must pay a fixed cost so that the generators can recover their capital expenditure irrespective of whether the state draws the power or not, over and above the payment of a variable charge for every unit of power that the state does draw.

In almost every chapter the problem of this demand and supply mismatch for power is attributed to the inability of the DISCOMs to scientifically forecast power demands. This unfortunately absolves a whole host of other agencies such as successive central governments, the Central Electricity Authority (CEA), and the power generators themselves, who possibly were in a much better position to forecast overall demand more accurately (if not perfe­ctly) and still got it wrong. The CEA (2012, 2017) has repeatedly revi­sed down its own estimates of power demand in successive reports. To be fair, demand forecasting is a difficult task for anyone, but it is much more so for state governments and its agencies who have been steadily losing control over economic drivers to the central government over the last three decades. This aspect of the changing state–centre dynamic which is starkly evident in the power sector falls through the gaps in the book as it takes the position of summing up state experiences to ­arrive at a national understanding.

RE and Financial Health

While the authors take an optimistic and benign view of renewable energy (RE), they neglect to discuss the role that RE has played in dwindling state finances, especially in the southern states, three of which are covered in the book. The centre has mandated a “must-run” status for solar and wind energy plants, which means that the DISCOM has to absorb all the energy from these plants, even if it is more than the amount the DISCOM is mandated to purchase by the state regulator. While it is true that newer solar plants are cheaper, most of the capacity in the states of Karnataka, Tamil Nadu, and Andhra Pradesh was commissioned before 2016 and is much more expensive than thermal energy in these states. Nevertheless, the DISCOMs have to reduce their purchase of relatively cheaper energy from thermal plants to absorb high-cost intermittent energy from renewable sources.

There is no compensation for this ­either. There is a coal cess levied in India since 2010, which has now increased to `400 per tonne of coal. While this increases the cost of coal-based power generation, the money should have at least gone to compensate those who have undertaken higher renewable energy deployment at higher cost to facilitate India’s international targets. However, the coal cess has been diverted for GST (goods and services tax) compensation in the last few years. Consumers have ended up paying a higher cost because of policies implemented by the central government, and not only because of some perceived DISCOM inefficiency. This again points to the fact that the myriad ways in which economic policy in general has affected the financial health of the sector cannot be understood by restricting the analysis of the same to a state’s electoral trajectory alone.

In Conclusion

Lastly, a study of the political economy of the power sector cannot be devoid of an analysis of the reality of the country’s social and economic conditions. We are still a poor country, backward in many aspects of industrial and commercial development, and no amount of political posturing will change that fact. This means that the need to provide electricity at low cost is real and not perceived. To simply dismiss this as political populism would be to ignore ground realities. The authors do acknowledge in their conclusions the inequity of access and the paradox of a power-surplus country with over 40 million households without access to electricity (p 360). But they put it down to the political exigencies at the level of each state, and the ­sociopolitical conditions of a state are reduced to the presence of demands for access and subsidy and not connected to the lived realities of the people in the state. Is it not possible that “need” is measured by actual developmental indicators and not by whether there is a ­mobilised demand for it?

The book therefore reduces politics to discourse only. The authors adopt a ­position of objective observers of the murky electoral realities in India and refuse to engage with the actual politics of the reforms and the larger global and national circumstances within which they have taken place. Despite the overwhelming evidence of their own work they do not question the substantive framework of the reforms themselves. By refusing to engage with the ideology of the reforms, the book provides an ­incomplete story of the political economy of the power sector in India. It is a map which presents the trees but misses the woods.

References

CEA (2012): “18th Electric Power Survey,” Central Electricity Authority, Government of India.

— (2017): “Ninteenth Electric Power Survey,” Central Electricity Authority, Government of India.

Chandrasekhar, C P (2018): “Non-performing Power Sector Assets: Signalling a Larger Crisis,” Economic & Political Weekly, Vol 53, No 37.

World Bank (1991): “India: Policy for Adjustment with Growth,” World Bank Report 9412-IN 1991, viewed on 26 April 2020, http://documents.worldbank.org/curated/en/962181468033534646/pdf/multi0p....

 

Updated On : 20th Oct, 2020

Comments

(-) Hide

EPW looks forward to your comments. Please note that comments are moderated as per our comments policy. They may take some time to appear. A comment, if suitable, may be selected for publication in the Letters pages of EPW.

Back to Top