Turn on the Lights

Nothing in our country diminishes us more than our power situation. It reminds us everyday that we are a Third World country. We have lost ten years since we began electricity reforms, and had we made the same progress as we have in telecom, we would have been able to say proudly what a Chinese woman said to me in Shanghai recently, “I feel I am living in a different country.” Our biggest mistake has been to forget the central idea behind our economic reforms-create competition in the market, and this will bring consumer choice, lower prices, better quality and improved service. To create a competitive power market we have to allow anyone to produce electricity and sell it in the market. If we did this there would be plenty of good quality electricity for everyone, prices would come down, and service would improve. In our enthusiasm over the Orissa model, we began to break up our State Electricity Boards, privatise distribution, but we forgot that there must be more than one player in each distribution circle. For creating competition we don't need to lay new lines, because each producer of power ought to have open access to the central grid and connect its power to the lines that are already laid. And any distributor, supplier or bulk consumer of power ought to have open access to this power, and by paying a charge for the use of the network it should bring power to our doorstep. This is what we are beginning to do in telecom. We must separate in our minds carriage (the wires or lines) and content (the electricity that runs on the lines). Two momentous events are happening over the next few weeks, and they can still set the country on the right path. One, the Electricity Bill 2001 is before a select committee of Parliament and is currently being debated. Two, Delhi is about to privatise power distribution. The Electricity Bill accepts the idea of open access in distribution, but it does not specify when. The original draft bill specified that it would happen in 3 years but the monopolists in the ministry deleted this date. Our well-intentioned power minister, Suresh Prabhu is trying hard to solve the power crisis. He is bright and energetic, but he has unfortunately been captured by the vested interests in the ministry and the SEBs, who want to preserve their monopolies. Otherwise, why should they suppress part of report of the Expert Group that included Montek Singh Ahluwalia, Deepak Parekh, Rakesh Mohan, Jairam Ramesh, K.V. Kamath, and Harish Salve? The Group studied data from around the world and concluded that our power prices would only come down if we allowed more than one company to sell power to the final consumer. It also cited the example of Bombay, where competition between BSES and TEC had lowered power prices. Mr Prabhu should look at international experience (e.g. U.K., Australia and New Zealand) where residents have multiple providers of power, and this competition has resulted in lower prices and better service to their consumers. The European Union has been so impressed with U.K.'s Electricity Act of 1989, which has brought down electricity prices by 30 percent over the last decade, that many European countries are restructuring along similar lines. Mr Prabhu should also learn from the telecom sector, where vested interests in the Department of Telecom (DoT) had tried to stop competition, until the Prime Minister in frustration had to take away the telecom reforms from the telecom department. Until he passed the authority to the Jaswant Singh committee, nothing happened because the Department of Telecom blocked every reform. Mr Prabhu will have to begin to value competition or Mr Vajpayee will have to change the minister, as he did in the case of Telecom. Delhi's impending privatisation has two tragic flaws. First, Delhi has been divided into three circles and we are about to invite bids for one company per distribution circle. Thus, we will replace a public monopoly by a private one. Although the massive theft of power may diminish, prices will not because 16 percent cost-plus return is guaranteed to each monopoly. Hence, Delhi's Electricity Regulatory Commission must insist on at least two competing players. The private companies will protest because no businessperson likes competition, but we don't want another Enron on our hands. Delhi's second fatal mistake is to give monopoly status to the state transmission company, which will become the sole buyer and seller of bulk power. We should undo this quickly to allow any distributor to buy power from anyone. Similarly, bulk consumers should have the right to buy directly from competing producers or suppliers. Only thus will the public interest be served.

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