Every year, the prime minister calls meetings of chief ministers and an action plan and a ‘new’ power policy to overcome electricity shortages are framed. Then power takes a back seat till they happen again. There is no coordinated action plan, no systems and monitoring to ensure their timely and effective implementation, no accountability demands of inefficient and ineffective bureaucrats.

Look at our history of failed policies. In 1992, government fast-tracked power generation and opened it to private investment. Only one project was implemented by Enron. It built a combined cycle (naphtha and gas) plant at Dabhol. The costs were heavily padded and consequent tariffs unacceptably high. The plant was shut down. It remains unviable. Maharashtra reels under electricity shortages while over 2,000 MW of capacity at Dabhol lies unusable because of high tariffs. The failure is entirely that of Central and state government officials who approved the project costs. Perhaps they were anxious for a major foreign investment. Perhaps some officials received special incentives from Enron to approve the high costs (as implied by the Godbole committee).

In 1998, the government opened transmission to private investment. This did not suit the Central government transmission monopoly, the Power Grid Corporation that wanted to retain its pre-eminence. It stalled private transmission projects unless they were joint ventures with Power Grid. The government did nothing and private investment was prevented till recently, except in one joint-venture project. Transmission shortages continue. As a result, electricity trading has not taken off and we are unable to optimize our limited capacity.

The Electricity Regulatory Commissions Act was passed in 1998. The Central electricity regulatory commission and state electricity regulatory commissions were formed. They have not been effective in implementing their mandates. Most SERCs have postponed tariff increases because governments were not in favour. They have done so by refusing legitimate expenses. They set targets for transmission and distribution loss reduction and metering without any base in empirical studies. Targets were not achieved. Distribution enterprises continue to lose money. State governments divert funds to pay and infrastructure and social expenditures suffer.

The appointment of regulators was non-transparent. Formal and informal state government directives interfered with regulatory decisions. Decisions of state regulators showed a bias for state-owned enterprises.

In 2000, the Centre introduced the innovative accelerated power development reform programme. It helped marginally in some states in reducing losses. The lack of government support, a disinterest among regulators in details of action plans for achieving targets, lack of monitoring over the year of the actions, poor administration and a lack of accountability in the absence of penalties for non-performance were largely responsible.

In 2002, Delhi privatized distribution. The scheme had inbuilt financial support from the state. This support was to come from the savings from electricity distribution by private companies. A lack of support from the Union government and the political leadership for privatization almost certainly stopped actions by other states on distribution privatization. Privatization has changed the distribution situation in Orissa and in Delhi. But a Congress-led Centre could not support the actions of a Congress government in Delhi. Central support to privatizing in non-Congress ruled states is more unlikely.

A major initiative of the innovative power minister, P. Rangarajan Kumaramangalam, the Electricity Act, 2003 has had limited impact. Many key provisions remain poorly implemented, if at all, by state regulators and state governments. Meanwhile, we continue to lament the state of the power sector as we did when in 1998 I was appointed the first chairman of the CERC. The slow Indian administrative system, a total absence of political leadership of all parties on reducing subsidies and improving efficiencies, the absence of a commercial and enterprise culture in state-owned distribution entities, prevent progress.

The principal bottlenecks to transformation are supply shortages; over-dependence on coal; the lack of accountability of independent regulators and their hesitation in ruling contrary to political winds; rising costs of fuels and consumers’ unwillingness to pay the costs of servicing these; the financial weakness of government-owned distribution entities; lack of political consensus; government ownership of most distribution networks; limited privatization initiatives; weak state administrations; and, crucially, power as a concurrent subject of the Centre and states.

How can we get out of this mess?

Coal must be released entirely from government ownership and bureaucratic management. The proposed allocation of captive coal mines to large-generation plants will remove this bottleneck. But new estimates show our coal reserves lasting for only 25 years. So we will need to import a great part of our requirements of fuels, oil, gas, uranium and coal. This demands a coordinated approach to energy security.

Regulation of all fuel tariffs (coal and gas) should be with the same regulator as for power so that all costs can be scrutinized, adequate returns ensured, and the consumer is not made to pay extortionate prices for the fuels.

The government has inconsistent policies. It is allocating captive mines to the ultra mega-power projects, thus enabling much lower electricity tariffs. But with gas, much of whose reserves are operated by the private sector, the government prefers to allow the lessors to make windfall profits in line with international prices. Gas as an alternative fuel to coal for electricity generation should be treated on a par with it. It is not.

Gas prices for power should be linked with other fuel costs. Gas is a national resource and big private profits lead to high power tariffs for consumers. Gas exploration and production risks deserve higher returns. A common regulator should ensure them, but not permit windfall profits from volatile world prices.

There is talk of members and chairpersons of regulatory commissions being remunerated well. But selections must be open and not just limited to retiring government employees. They should be made accountable to legislative committees.

The Centre should use incentives to get the states to implement the Electricity Act. All demand forecasting should take demand elasticity, because of declining thefts, and subsidies into account. Forecasts should be futuristic, not based on past low economic growth, building a spinning reserve of at least five per cent of capacity. Rising incentives for open access with low surcharge, widespread metering, rationalizing of subsidies, distancing from regulators and electricity distribution enterprises and incentivizing captive generation must be pursued through the APRDP.

State governments must distance their administration of power from management of power enterprises. These must be restructured to have a commercial approach. State governments should separate ownership from management by privatizing distribution, based on the realistic Delhi model.

The Union government must ensure that its policies are not subverted by public sector enterprises. It must ensure coordination among the ministries of coal, gas, power, renewables, environment and forests, finance and railways, and also help in speedy clearance of environmental issues. The Centre should develop alternatives for the precise targeting of beneficiaries of cheap or free electricity. States must be penalized if they do not do so. Funds must not be wasted on those outside the target populations. Incentives for renewable energy use must be for electricity generated, not for mere construction of the plant as is the case today with wind.

Above all, we need a political consensus among all parties so that the issue of power does not remain a game of political football.