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Wednesday, February 2, 2011

>The 2004 Lok Sabha election results saw a dramatic shift of power at the union level from the NDA to UPA. Much of the debate in the media is consequently centered around the impact of this political shift on economic reform process and social sector policies. But the real impact of this election is on States. With the defeat of ruling parties in Andhra Pradesh, Tamil Nadu and Karnataka, there has been a marked shift of policy in power sector. In many ways, the fiscal and industrial future of states depends on the management of power sector. A close examination of what is ailing rural power sector is necessary to shape the debate on public policy.



Congress party offered free power to farmers in AP, and on assuming office, the state government promptly delivered on its populist promise. In addition, a one-time sop is given to defaulting farmers by waiving all dues to the power distribution companies. The immediate and direct loss to the distribution companies is about Rs 400 crore in power tariff, and Rs 1100 crore in the form of dues. As a consequence, the power subsidy burden which was around Rs 1500 crore per annum, will rise to about Rs 3000 crore during fiscal 2004-05. While waiver of dues is a one-time burden, the loss of power tariff will be a recurrent burden on the exchequer every year. Tamil Nadu government too promptly reversed its earlier policy, and reverted back to free agricultural power. This could well set a trend in other States.



The disingenuous argument of AP government is that the burden on account of free power is only of the order of Rs 400 crore per annum, and that should be cheerfully borne by the exchequer to alleviate the distress in farm sector. Viewed purely from the context of realization of revenues from agricultural sector in the state, this is a technically correct statement. But this is a gross distortion of the complex crisis affecting the farm sector. Agricultural power is already heavily subsidized on account of the uneconomically low tariff at fixed slab rate based on connected load. The exact subsidy amount on account of agriculture is disputed, because there is no accurate and reliable measurement of agricultural consumption.



In any case, causes of rural distress are unrelated to agricultural power tariffs. Problems of productivity, markets and value addition are unaddressed. Huge bribes are extorted for giving power connections to agricultural pumpsets, and often these bribe amounts equal ten years’ tariff payments at the slab rates in vogue until recently. Even as such venal corruption continues, marginal tariffs are claimed to cause distress!



Even more importantly, very low fixed tariffs at slab rates based on connected load encouraged indiscriminate exploitation of ground water. Water levels are falling precipitously in dry lands. The benefits of free power go only to the few farmers who can invest huge sums in sinking borewells, and are lucky to strike water. Enticed by nominal tariffs, many small farmers borrowed at usurious rates and drilled several unsuccessful borewells. This indebtedness for indiscriminate drilling lies behind several farmers’ suicides. As agricultural power was not metered even earlier, the few lucky farmers raise water-intensive crops in rain-shadow zones, further depleting ground water. On top of it, there is no incentive for efficient use of energy as a fixed slab rate was charged per HP of connected load earlier, and power is free now. Consequently, inefficient or high capacity motors are installed, sometimes in the hope that a larger pumpset will yield more water. The limited water available is wastefully used, and sometimes motors run idly as ground water recharging is slower than drawal of water. The consequences of unmetered power have clearly been horrendous to the economy, water table, and environment.



Is there a way out? The free power policy cannot be reversed easily for the time being. Even the Prime Minister was forced by political compulsions to reluctantly endorse such a policy. Can we convert this challenge into an opportunity and address the real crisis afflicting the rural power sector?



A radical reorientation is required in our approach to agricultural power. We must recognize that farm sector does need support for sound economic and political reasons. Therefore the policy should not be to recover economic power tariffs from agricultural sector. We need to redefine our objectives – energy and water conservation, and proper energy auditing. In order to achieve these, we need metered power supply. If free power is inevitable, there must be a reasonable ceiling of say, 3000 units per annum for such freebies, and a modest, but progressively increasing tariff should be charged once consumption crosses that limit. The utilities can install meters at their own cost. Once there is incentive for energy conservation, farmers will install efficient, low-HP motors, and use energy saving devices.



Simultaneously, the benefits of free or concessional power should be limited only to dry crops. This is easy to monitor, as the crop raised is physically verifiable. Cropping area will increase with the same amount of water. Encouragement of dry crops, coupled with graded tariffs will significantly reduce agricultural power consumption. Therein lies the real benefit to utilities: that energy saved can be redirected to other consumers who pay higher tariffs.



Metering of power leads to another great benefit. There will be better energy auditing. Right now, in many states, we have no clue about power losses. In AP, for instance, all we know is that some 46% of the power is metered and billed. The rest is consumed by agriculture, or stolen because of collusive corruption (euphemistically called ‘commercial losses’) or lost because of poor distribution infrastructure. Nobody really knows what is happening where. While we have a global picture of power sector deficits, what we need is precise energy auditing at the local level to address the problems systematically. Metering localizes problems, and enables us to reduce losses.



Unmetered power, whether free or not, is a disaster in every sense – lowering of water table, high energy consumption, absence of energy audit, monumental corruption, and paralysis of action on distribution front. Free, or concessional power can yet be used as an incentive to meter power, save energy, conserve water, ensure better energy auditing, and improve distribution. If a sensible national policy is evolved and implemented fairly, the current crisis can yet turn out to be a great opportunity.



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