Taking politics out of power

Feb 05 2013, 03:30 IST
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SummaryFor one, bipartisan political support is necessary for governments to restore regulatory credibility and depoliticise tariff setting

For one, bipartisan political support is necessary for governments to restore regulatory credibility and depoliticise tariff setting

The electricity sector arguably presents the most critical infrastructure bottleneck, indeed supply-side constraint, facing the Indian economy. Standard solutions to the problem have revolved around deregulation and private participation in fuel exploration, power generation and distribution, coupled with efficiency improvements in public utilities. But such technocratic assessments simplify the issue and do little to meaningfully address the problem.

Any serious attempt to reform the electricity sector has to revolve around four objectives increasing fuel availability, reducing distribution losses, periodic tariff revision, and reforming free and unmetered agriculture supply. However, if we are to make progress with any of them, we need to go beyond policy reforms and efficiency improvements and resolve the political collective action problem. Since each of them will adversely affect some significant electoral constituency, collectively political parties become prisoners of populist rhetoric, even when they privately support these reforms. Let me illustrate the challenge.

It is estimated that upto a third of Indias power generation capacity, both thermal and gas generators, is lying idle due to fuel scarcity. Further, a number of thermal power plants have less than a weeks fuel stock. Fuel shortages and large distribution losses are responsible for several inefficiencies and systemic distortions. For a start, they squeeze the actual available supply from both the generation and distribution sides. This, in turn, adversely affects the balance sheets of generation and distribution companies. In fact, addressing at least one of these two would be enough to satisfactorily resolve our peak power deficits and ensure adequate round-the-clock supply across the country.

While the state-owned coal mining monopoly, Coal India Limited (CIL), should shoulder its share of the blame for the current crisis, the major problems lie beyond mining per se. Land acquisition and environmental clearances are essential for both new mining projects and capacity-expansion in old mines, as well as for laying rail transport lines. In the prevailing social and political climate, where populist rhetoric and media trials shape the mainstream discourse, both these issues present difficult, increasingly insurmountable challenges. We therefore have a situation where even the mined coal is stuck at the pithead for lack of adequate transportation facilities and capacity-addition projects are delayed inordinately.

The private sector will be even less capable of addressing these non-mining challenges. Though the private sector would be effective at mining coal, the problems of

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