Volume 1, No. 9, November 2000

After cyber puppet, Chandra Babu, the ‘Swadeshi’ Indian government has presented to its people yet another imperialist recruit the once Gandhian-turned Swadeshi, P.R. Kumaramangalam. With him dead another puppet will replace him. Popularly known as ‘Ranga’, Kumaramangalam was an active trade union leader, shared the leftist leanings of his family, and came out forcefully and publicly against the economic reforms of the imperialists, stamping them as being responsible for the ‘distortion and corruption’ in Indian politics. The denouncement of this ‘ranga’ (drama) was his resignation as Parliamentary Affairs Minister of the Narasimha Rao’s government in 1993, to become a staunch ‘swadeshi’ by joining the BJP.

Being guided by his new masters, Kumaramangalam relenting his antagonist stand against economic reforms, now advocated the need of no less than Rs. 2 lakh crores for the additional generation of 50,000MW of power during the Ninth Plan Period, to be met through private sector investment. And since the private sector was not coming forward with investment as it was wary of the regulations in vogue, especially the tariff structure, the swadeshi-branded Power Minister pleaded that ‘Unless existing regulations are changed and the tariff structure is made more viable and enforceable, the much needed fillip to the power sector may not come through. My priority therefore is to bring the policy changes through legislation in the matter of tariffs by bringing into existence a tariff commission’ (Powerline, Apr. ’98).

So with the aim of promoting "the much needed fillip to the power sector by the private investors", Ranga unprecedentedly engaged an economic research institute. (the National Council of Applied Economic Research) to undertake preparations for the proposed Electricity Bill, 2000. Philosophized and engineered by the client’s brief, the research institute fulfilled their contractual obligation and presented the draft bill for the proposed legislation to the Ministry of Power "intended to accelerate the reforms necessary to ensure a healthy power industry in India."

The sole strategy of the reform, sought to be legitimised by this Bill, aims at dismemberment of the Electricity Boards under the state sector, winding them up and making distress sales to private operators. The power sector is intended to be made free for all, answerable to none, and the role of the State reduced to that of a helpless spectator. This may be an easy way out for the government but it leaves a host of serious questions unanswered. The salient features of the Bill, are summarised below :

(1) The restructuring and modernisation of this industry is now inevitable if the goal of providing universal access to reliable and affordable electricity is to be achieved in the foreseeable future.

(2) States may keep SEBs or may privatise them. In any case, SEBs will have to act as a business organisation.

(3) Transmission Companies under the Companies Act, 1956 in vogue, will be reconstituted through public and private investment for evacuation and transmission of power from different Generating Companies.

(4) Transmission companies will enter into agreement with Area Distributor/Distributor/Subsidiary/Associate/Purchaser/Retailer for transmission and distribution of power. The latter may also enter into sub-contract with any individual or group of individuals for distribution of power to the end consumers.

(5) An Electricity Regulatory Commission (Centre/State) will take policy decisions regarding fixing of tariff/fuel surcharge/cess, taking the reasonable profit element, at every level, into consideration.

(6) Before dismemberment of the SEBs, the respective States will constitute ‘Corporations’ (Generation /Transmission/ Distribution) registered under the Companies Act, 1956. TRANSCO will come up as the main company.

(7) After the unbundling of the SEBs, all their assets will vest with the State Government., and the state government in turn will hand over the assets to the respective stake holders in accordance with the sale deeds. The liabilities of the erstwhile SEBs including the terminal benefits of their employees will be met from the sale value of the assets thus received by the government.

(8) The respective state governments will transfer the employees of the erstwhile SEBs, under the different companies, as per terms mentioned in the transfer scheme. Steps will however be taken to see that the posts held and the pay enjoyed by the employees may not be less favourable. After transfer to the new employer, employment will be regulated by the Regulations of the stake holders. However, employees are not entitled to prefer any suit against the Government/Stake Holder/SEB for any relief or compensation for such transfer in any court.

(9) The consumers will have to enter into fresh agreement, with the distributor of power, at their own cost.

(10) One of the functions and duties of the Electricity Regulatory Commission (Centre/State) is to promote, encourage and assist private investment in the electricity industry. Disputes arising out of the decision of the Regulatory Commission can only be raised in the Division Bench of the High Courts.

(11) The government (Centre/state) will arrange the acquisition of land for the private investors in such a manner as if the land will be required to meet the exigencies of the government.

(12) The government will arrange subvention (subsidy) to the investors, from the exchequer, either as aid and/or loan and also act as guarantor for any market loan and interest there of, taken by the investors.

(13) The new power projects are eligible for a five-year tax holiday.

(14) Duties on the import of equipment for the power project had been reduced considerably initially and currently they are zero.

The proposed legislation would, it appears, satisfy only one interest, that of the profit-seeking investor. That seems to be the only purpose served by the Electricity Bill, 2000.

Prior to the present legislation, the Electricity (Supply) Act, 1948 was amended in 1991 to facilitate the setting up of private generating stations. In 1998, the Electricity Act, 1910 was amended for enabling private investment in the transmission sector. In the same year, the Electricity Regulatory Commissions Act, 1998 was enacted to provide for Regulatory Commissions at the Centre and in the States for tariff-setting and regulation of the electricity industry. So far six States, namely Orissa, Haryana, Andhra Pradesh, Karnataka, Rajasthan and Uttar Pradesh have enacted their respective laws to provide for the setting up of separate corporate entities for the generation, transmission and distribution of electricity in place of the existing SEBs. Some other States are actively considering similar measures.

The National Working Group on Power, headed by N.S. Vasant, former Chairman, Punjab State Electricity Board, reviewed the whole situation. The Working Group has stated that "it is distressing that the reforms are being carried out in spite of negative results verging on disaster". Their study report has collated the following results :

(i) The Maharashtra State Electricity Board (MSEB), so far a profit making Board, is now expected to end up making a loss of over Rs. 1,700 crores in the year 1999-2000. In Maharashtra, Enron’s Dabhol Power Corporation (DPC) tariff is Rs. 4.76 per unit (Fuel cost ranges between Rs. 2 to 2.25 per unit and capacity charges are about Rs. 1.60) as against an average generation cost of Rs. 0.32 per unit from MSEB’s hydro-electric stations, Rs. 1.25 from the thermal stations and around Rs. 1.40 from the NTPC. The MSEB is forced to close down its own generation, and purchase costlier power; it cannot reduce the PLF of the DPC since the LNG (liquid natural gas) contract has already been made for 22% PLF. With the completion of DPC (Phase I & II) not only would MSEB, but even the state of Maharashtra would become bankrupt since the DPC is covered by guarantees and counter guarantees. At this rate, MSEB and the Government of Maharashtra, in due course, may be forced to start selling its assets/power houses to Enron (as happened in Uttar Pradesh and Orissa against the arrears of NTPC).

(ii) In Orissa the losses of GENCO (the generation part of the erstwhile SEB) were Rs. 294.99 crores in 1996-97 against Rs. 230.65 incurred by the parent OSEB in 1995-96. Supply to the rural areas has been stopped. AES (an American investor in GENCO) has come up with the claim of enhancing tariffs three times, or else the AES should be compensated to the tune of Rs. 300 crores for damages during the cyclone, since the company was in the process of arranging an insurance cover when the super cyclone hit Orissa.

After four years of reform in the power sector in Orissa under the gaze of the World Bank, the Bank’s Country Director, Edwin Lim wrote to Orissa’s Chief Secretary to rescue GRIDCO (the transmission company) from the debt-servicing burden, and sought assistance from the Government of India. The centre promptly complied with a financial restructuring package of Rs. 2,715 crores, lest the set-back should send negative signals to other reforming states such as Andhra Pradesh, Haryana, Karnataka and Uttar Pradesh.

Preparatory to privatisation of the four distribution zones of Orissa, their accounts were separated from those of GRIDCO and four companies were incorporated. The four distribution companies together had liabilities of over Rs. 2,000 crores. But the Bank suggested that GRIDCO transfer only part of these liabilities and take on itself the rest. This was in order to make the distribution companies attractive to prospective buyers. In 1999, 51 per cent of the shares of the Distribution companies (DISTCOs) were sold to the highest bidder. The Regulatory Commission allowed retail tariffs to be fixed in a way that would cover the cost of bulk power purchases by the DISTCOs from the GRIDCO, plus a 16 per cent return on the investments made in the purchase of the companies, with an allowance for transmission and distribution losses (ranging to 50 per cent, against an internationally accepted norm of 7 per cent).

(iii) The Haryana State Electricity Board has since been unbundled and corporatised, firstly by separating generation and transmission. Later, transmission has been divided into four distribution companies and a transmission company. International agencies, other than the World Bank, have chipped in with $400 million. They included OECF (Japan), KfW (Germany) and DFID (UK). Technical assistance are being provided as a grant, and not a loan, by the international agencies like DFID, USEA, USAID and CIDA. DFID will focus on regulatory commission, corporatisation, financial restructuring, distribution, privatisation and a broad-based execution of the ‘reform’. It will also provide a communication strategy and personal management. CIDA will help provide expansion and planning.

(iv) The Government of Madhya Pradesh is learnt to have accepted the recommendation of the Tata Rao Committee towards restructuring of the Madhya Pradesh State Electricity Board. Multinational companies like Daewoo Power, Power Gen, GBL Power, Pench Power, STI, Guna and Shree Maheshwar Hydel are some of the agencies operating on the generation side, in the state. A consortium of the KEC International and Crompton Greaves has been awarded with the charge of the transmission system. A new 600 KM long 400 KV double circuit line would be developed by this consortium on a build-own-transfer basis.

(v) The generation part of the state-owned power sector in Tripura has been handed over to a private investor NEEPCO.

(vi) The Kerala Government has since drawn up a package of reforms.

The transmission and distribution losses, which was a major plank of the reforms, have gone soaring in the ‘reformed’ states : This will be evident from the following table :

The draft of the Bill was presented to the conference of the Chief Ministers and Power Ministers on 26th February, 2000. The problems identified by the conference were :

(i) outstanding dues of the SEBs

(ii) inability of the governments (Centre/State) to provide budgetary support, due to fiscal deficits

(iii) unsustainability of cross-subsidies by the industry

Primary factors identified for these ills were :

(i) theft of electricity

(ii) technical losses in transmission and distribution, and

(iii) poor operational efficiency of 50% of the thermal plants in the State sector

To any rational person, it would be obvious that the solution to none of these problems lie in drastic legislative and structural changes of the industry. The root cause of the poor financial health of SEBs is not on account of extant laws, but due to its violation by the governments. The problems of outstanding dues and partially even the poor operational performance is a consequence of the massive corruption and willful violation by the state governments of Sec.59 of the Electricity (Supply) Act, 1948 which statutorily require the state governments to assure SEBs a minimum rate of return of 3% on their invested capital.

(i) to enforce the unbundling of the vertically integrated SEBs in order to facilitate the privatisation of the generation, transmission and distribution components and also to facilitate the multinationals to replace a public sector monopoly with a private monopoly (e.g. AES Orissa). It is ironical that vertically integrated private power sector companies like CESC, Tata Electric Company etc., have been kept undisturbed.

(ii) to create institutions that have no accountability to the legislature, yet regulate to guarantee big profits on a highly capital intensive industry (wherein a single paisa increase in tariffs implies an additional annual revenue of Rs. 70,000 per MW at 80% PLF).

(iii) to create a ‘half slave and half free’ sector wherein the Regulators (State/Centre) would control the tariffs of the public funded institutions, but the tariffs for the private sector (particularly the foreign funded sector) would be dictated by power purchase agreements and would be outside the purview of the Regulators.

(iv) to ensure that the state is demobilised and the entire fund requirement in this core sector industry, is based on, and controlled by, international finance capital.

(v) to maximise private profit by ensuring the elimination of ceiling on profits.

(vi) to provide this essential public service only to those who can pay, thereby threatening the power supply to rural areas and the farm sector and the urban poor.

(vii) to enable multinational corporations to take over, on their own terms, the assets of the SEBs.

As far as ‘reforms’ in the power sector is concerned, West Bengal under the governance of the Left Front government is the pioneer, far to speak to speak of lagging behind. It may be recalled that when the objective of privatising the power sector to make room for the imperialists was in its embryonic form, the West Bengal government mutilated two supply stations of the WBSEB and formed the Singur-Haripal Rural Electricity Co-operative Ltd., in the year 1980. In 1987 the government floated a company in the name of the "Power Development Corporation Ltd." and handed over Kolaghat Thermal Power Project, a 210X6MW project under construction by WBSEB, to it. Further dismemberment of the WBSEB was done by the Lavpur RE Cooperative Societies Ltd., in the district of Birbhoom, and by the Sagardwip Rural Energy Development Cooperative Society Ltd. in 24-Parganas (South). In 1999 yet another company was constituted by the government in the name of the West Bengal Rural Energy Development Corporation Ltd., essentially a power distribution company, whose objective, in the long term, is to supply ‘power on demand’ in the rural areas. In the meantime, the WBSEB, vide its circular, intimated to all concerned that the government had decided to bring the thermal power stations under the WBPDCL in phases, to function as separate business units. Be it mentioned that both WBPDCL and WBREDCL are registered under the Companies Act, 1956 having their own Memorandum of Associations and Memorandum of Articles. The REDCL will purchase power at rates and terms set by the Power Purchase Agreement (PPA). While the management of these two companies are corporatised, the works of distribution of power, line maintenance, new connections, fuse calls, meter reading and billing, collection etc., will be done contractually. The government preaches that such steps in the power sector is not privatisation, but is an attempt at restructuring, since the SEB is not able to cope with the burden of responsibility as it stands at present. Over and above this, the SEB is reeling under a debt trap, and has reduced itself to insolvency and hence no financial institution is coming up to help with a rescue package by giving loans etc. In its propaganda, the government is audacious enough to suppress the following salient points :

(i) Despite constraints imposed by the government and interference from the political level, the SEB did extremely well upto the major part of the seventies. But the government has seldom permitted the autonomy provided for SEB in the statutes. The SEB is compelled to shoulder the blame of mis-management, inefficiency and deterioration in the quality of service.

(ii) The WBSEB has been reduced to the status of mere trader in place of producer. It is compelled to meet the power demand of the State through purchases from outside agencies, the quantum of which is more than double its own generation.

(iii) There is a direction from the State government to the WBSEB for guaranteed off-take at the rate of 80% PLF from other outside agencies. As a result the WBSEB has to hike up or tone down its own generation, resulting in seriously effecting its own per capital production cost.

(iv) Both the Central and State governments have large unpaid bills, kept as arrears due to the WBSEB for their consumption of power. This is more than 30% of SEB’s total revenue.

(v) No financial help or subsidy is borne by the government for the supply of power and maintenance of the system with regard to the Kutir Jyoti and Lokdeep projects.

(vi) Theft of energy, which ranges from 7-8%, tells upon the financial health of the WBSEB. Such theft takes place under the political patronage of the party in power. It may be recalled that a 1% loss of energy means 450 MW loss of power.

(vii) The state government is totally indifferent to the WBSEB taking action for realising energy bills from some big companies. This amount ranges upto Rs. 1,000 crores.

The Electricity Bill 2000 is being brought into being superseding a host of acts passed earlier, such as the Electricity Act 1910, and the Electric Supply Act (1948). The net result of the proposed Act consists in the unbundling of the huge public sector power enterprises, i.e., State Electricity Boards (SEBs).

The aim of Electricity Bill 2000 is supposedly to "provide universal access to reliable and affordable electricity." In the preface to the Bill, it was recognised that immediately after the transfer of power, "nationalisation was considered essential at that time for extending power utility to the vast rural and economically backward regions across the country." But it has, in the same breath, been pointed out that the SEBs now "began to face serious difficulties over the years owing to their inability to recover costs and ineffeciencies arising out of their unwieldy structure." Hence an all-India meet of Chief Ministers of various states, in the year 1996, recognised the widening gap between demand and supply, and identified the need for corporatisation and restructuring of the SEBs (i.e., privatisation), and even abolishing the Boards altogether, and decided enactment of laws towards this end by their respective legislatures. Accordingly, some six states have enacted their respective laws to provide for the splitting of the Boards and creation of separate entities for generation, transmission and distribution of power. West Bengal’s Left Front Government has also made up its mind to privatise and corporatise the power industry step by step and not in a hurry partly due to employees’s pressure, and partly due to the fact that the West Bengal Government has already taken steps in that direction through the creation of the power development corporations. This was long before the BJP even thought of it.

Now about avowed aims regarding the universal access to reliable and affordable electricity. The aforesaid social aims would have to be drastically curtailed as each of the three components—production, transmission and distribution — would be run separately and according to market and commercial policies of profits and business viability. It may further be noted that after passing through at least three power purchasing agreements (PPA) ensuring a lucrative amount of guaranteed returns (profits), the consumers will ultimately receive electricity at enormously inflated prices. So it may be safe to conclude that the common people, particularly the rural folk, getting power, to light up the dark recesses of their huts, would remain a pipe dream. Further, it is assumed that privatisation and the opening up of the power industries to the big comprador capitalists and imperialist TNCs would throw up a ‘level playing field’ for competition which would supposedly bring down costs. But the reality is that with the massive capital involved, and the hi-tech schemes envisaged, it is the multinationals that will dominate this sector. So, what would result, is a switch from state monopoly to the monopoly of the TNCs.

An example of sorts is the meter-reading and billing of the thousands of consumers in the urban as well as rural areas through private cooperatives and panchayats respectively. These two bodies, in their turn, would be forced, out of business principles, to hand over such operations to the enterprises with ‘expertise’ to complete the tasks quicker than indigenous agencies.

The foregoing plans of the governments, demands a dogged struggle by the power workers unitedly, not only for their immediate demands, but against privatisation, and to reorganise the existing public utilities to ensure both viability and the fulfillment of social aims. From the nature of restructuring of the power industries in the matrix of capitalist globalisation, it is obvious that a major section of the workforce, including the better-paid engineers, are arrayed against this privatisation, simply for their existence. The earlier struggle of the UP power workers showed this. Add also to this, the strength, of a sizable section belonging to the contract, casual and daily-rated workers, whose numbers are swelling day by day. In the power sector itself, if united, there is a mighty force arrayed against the perpetrators of these evil policies.

But, the struggle cannot be confined only to the employees of the power sector. Every single consumer of electricity in this country will be badly hit. The worst to be hit will be the rural masses and the urban poor and middle classes.

A militant struggle by all these forces can definitely stall the process of privatisation of power. And a more determined struggle, to kick the imperialists out of our country, and smash their lackeys within, is the only guarantee for reversing the process of privatisation in total.

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