ELECTRICITY FOR ALL

Vikram Lal*

Electricity is the equivalent of blood for a modern, efficient, productive economy. And just like blood for the body, it needs to be there at all times, not being switched off and on at random, for whatever reason.

Electricity has two distinct types of functions. The first is as a source of raw energy, where it drives motors, welding machines, heaters, and all kinds of equipment in factories; air-conditioning and refrigerators in cold storages, offices, cinemas, and in all kinds of other commercial establishments; lighting in homes, offices, streets. In most such cases, breakdowns in supply have terrible effects. The fact that we have become used to them does not in anyway mitigate the harm caused by them. We have forgotten how it is to have an uninterrupted supply of electricity, and can therefore scarcely imagine the advantages.

The second function of electricity is as a means of signalling and communicating. The amount of power used in a computer – and in all other such applications – is relatively small, but it is this little input that enables all such machines and control elements to work. In this set of applications electricity works more as a brain signal does, because it helps control all human activities, be it manufacturing, or distribution, or governance, or entertainment.

Both these applications of electricity have become a part of most peoples’ lives, even in India. Those who are not using electricity are generally living rather disadvantaged lives, and that situation needs to be changed forthwith. However, unless electricity is freely available, this just cannot happen.

It is reasonable to argue that no one in a position of authority would like to see the shortage of electricity to continue. In fact, they would very much like electricity to be made available on tap for everyone who needs it. However, our reality is that despite this strong desire, there has been no change for the better over the last 3 ½ decades. The situation has, in fact, deteriorated in recent times to such an extent that Mumbai and Maharashtra, which were quite immune to electricity shortages, now find themselves plagued by the same disease.

Although there is no overt or direct opposition to the universal availability of electricity, today’s existing structure as well as the interests of various groups of people prevent that from happening. In almost all states of India, there are monopolies in the generation, transmission and distribution of electricity. That itself is a very bad idea, because monopolies, be they public sector or private, behave totally against the interests of the consumers. Their service is poor to non-existent, they act arbitrarily and high-handedly, and they generally charge more – and often much more – than is reasonable. It is not their fault. One could say that human nature compels them to behave in this manner.

Competition is the key to good service, continuously improving products and the lowest possible prices. This is the situation that should be brought about in the areas of generation, transmission and distribution of electricity. There is a school of thought that all the three stages of electricity are capital intensive, and that therefore only one entity should service any given area. However, we only need to look at the telecom business, which is about as capital intensive, and where today there are five vendors competing against one another in every circle in India. The net result is high service levels, a plethora of products to choose from, and prices amongst the lowest in the world.

Another example of a capital intensive business is air travel. As long as there was just Indian Airlines, the consumer had to suffer the worst of a monopolistic attitude. In my view, the situation would not have been very different even if a private company had that monopoly. Today, with a number of alternatives available on just about every route, even Indian Airlines is bending over backwards to please the passenger. Such examples can be multiplied at will – be it the passenger car industry, the commercial vehicle industry, the real estate business, and even banking. All have improved dramatically with competition.

The second apparent obstacle is the SEB – the state electricity board that is the monopolist in each state of the country. Even if we had 2, 3 or 4 suppliers of electricity in every area, there is the problem of the SEBs to be resolved. The SEBs represent several kinds of vested interests. The most negative is the monopoly aspect, which has already been dealt with above.

The second – and very serious – issue is that of employees. In almost all cases, the SEBs have two to three times the number of employees they require, even by relaxed public sector standards. Since SEBs are known to be monopolies with very lucrative positions, there has always been a lot of pressure to get employment in them. Politicians and even bureaucrats have bent or broken every rule to get ‘their’ people employed. This has resulted in huge surplus manpower.

The third issue is that many state governments are using the SEBs to subsidise electricity for farmers. This distorts the consumption pattern and allocation of resources. As a result, even if the SEB were to operate at a high level of efficiency, it is unlikely that it would (in many states) be able to break even. In the prevailing state of affairs, the SEB employees also tend to inflate the figures of consumption by the agriculture sector to cover up undue transmission and distribution losses.

The fourth issue is the vested interest of corruption. Here both the SEB employees as well as corrupt consumers are involved. The pilferage is not attributable to the poor who dwell in slums and use power illegally. That certainly is a problem, but most likely not nearly as serious as the collusive theft by large users of electricity.

It is with all these issues in mind that one has to approach the problem and arrive at possible solutions.

One aspect of the solution would be the number of companies – public or private – in each of the three segments of power generation, transmission and distribution. Here my suggestion is that there should be at least 3 significant units. Just two companies is a very fragile competitive scenario – it is much easier for 2 to collude than for 3 to do so. More than that, if one of the two is unable to perform, the market once again reverts to being a monopoly.

The second aspect is that even though there are three distinct segments to the business of electricity, there should be no bar to a party operating a composite system of generation, transmission and distribution, as the SEBs do as present. It should be free for a company to enter any one or more of the segments in each market. The idea is to enable the development of a whole ecosystem of entities competing and collaborating with one another under the vigilant eye of a neutral regulator acting in the best interest of consumers.

And the third and final aspect is that, once the market is a truly competitive one, the problems of the SEBs will automatically be taken care of. Although that will be a very positive development for the consumers and for the economy as a whole, it will mean a fair amount of pain for those who have taken advantage of the electricity monopoly all these years:

Corruption will fall dramatically because rent-seeking will no longer be possible.

• It will be possible to compare performance – overall as well as of sub-sets – between the SEBs and the other companies. That will probably lead to pressure on the management of the SEBs, and hence on the employees.
• It is likely that recruitment in SEBs will stop, and the surpluses will be reduced and, perhaps eliminated over time through attrition and retirement. It may take many years, but it will be movement in the right direction.

Another thought here is that there are large pockets of very high electricity consumption, e.g. industrial areas, large individual industrial units. It should be possible for a supplier to set up a composite (generation, transmission, distribution) unit at that site to ‘capture’ that market. If the demand in that area is large enough, it would be a very cost effective solution. However, there should be no bar to a second or even third vendor setting up shop in that area. Such initiatives often encourage other industries to locate in that area, since a vital requirement – power – would be readily available.

A very important aspect of electricity shortage is what everyone affected does in order to mitigate the impact on themselves.

The most common action by those who can afford to do so is to install a generating set. If the user is a large industry, and the installation is of at least ten megawatts, the cost to the user and to the economy may not be very large. However, as the gensets come down in size, the cost goes up rapidly. Even a medium sized diesel generator (250 kW) would produce electricity at a running cost of something like Rs 7 or 8 per kWh. If one were to add other costs, it could be Rs 9 or 10/kWh. That is the cost to the user. The running cost consists largely of diesel and oil, which entails a cost to the economy that is significantly higher than in the case of the fuel used in a large power plant. Another result of the use of gensets, large or small, is the substantial increase in pollution.

The worst impact of the shortage is the use of small gensets by shops and homes. These sets mostly run on petrol or kerosene, are very noisy, and often in poor condition, and their emissions are noxious.

The effect of power shortage on those segments of the society that cannot afford a genset are much worse. Small scale industry and handicraft workshops often come to a halt, as does much else. Homes, offices, schools, colleges and many other consumers suffer because they have no choice. The worst lot is of those who are already suffering – people in hospitals. Their treatment is interrupted,

Apart from all the disruption inflicted on the population, what is happening is that much more is being invested in gensets and parasitic equipments like inverters, voltage stabilizers, etc than would be necessary to build the required large power plants and incremental network for transmission and distribution. And very much more fuel is being consumed by these gensets than those large power plants would consume.

In brief, our short-sightedness is literal: we are axing our own feet because we don’t seem to be able to see what we are up to.

All we really need to do is to unfetter the electricity industry from the sloth of the state governments and from dogma. The new Electricity Act, promulgated in the year 2003, provides the framework for power sector reforms and infusion of the much needed competition in the sclerotic segments of the industry. The crux of the problem is in making the state governments shed their misgivings and discern a political advantage in adopting a reformist agenda.