Rising need

There is practically no place in India that is not short of clean, safe and affordable energy — whether electricity, liquefied petroleum gas or petrol. Politicians, consumer groups, the media and civil society, everyone who gets it — and there are 500 million households that use dried twigs, leaves etc as fuel — complains bitterly when the prices are raised. None of them remembers that this country is short of fuels (crude oil, gas, uranium and even coal). Not one of them, including the media, recognizes the inefficiency of our nationalized coal industry. It uses old technologies, it is overstaffed, lacking in discipline, corrupt, inefficient and government-owned. That is also true for much of our oil and gas, all uranium and most electricity. Our energy governance through ministries is diffused, mostly incompetent and, in many cases, also venal. That it is a concurrent subject, with state governments being responsible for all activity within the states, has meant that there is considerable populism in pricing and inefficiency in management.

At the Central level, major reforms took place under Rangarajan Kumaramangalam, a minister in the Atal Bihari Vajpayee government with considerable autonomy in action. The Electricity Act of 2003 that he pioneered was a landmark replacement of the electricity legislations of 1910, 1948 and 1998. It made possible many new activities like power trading, exchanges and open access. But his successors either did not have his political clout or, in most cases, were plain incapable. R.V. Shahi, a power engineer who had been the director of the National Thermal Power Corporation and chairman of the country’s largest private distribution company, Bombay Suburban Electric Supply, was followed by a series of IAS officers. Shahi made many innovations, such as the accelerated power reform and development programme, which introduced rewards and penalties to states that followed a plan for change.

State government electricity departments were almost everywhere and always badly led and administered. They gave away free electricity to agriculture, and did not go after electricity thieves and punish them. They wasted so much of state revenues on populist tariffs and schemes that they had little money left for investment, operations and maintenance, and none for renovation and modernization. But they would not privatize distribution, which must be financially viable so that money could flow back into the system from the sales of electricity. The result was little interest in private investment since there was no certainty of payment for sales.

With some scope for amendment, India has good legislation for independent electricity regulation. It is subverted by state governments who appoint ageing and retired administrators to these positions, giving them cushy post-retirement berths. It also enabled state governments to direct regulators so that tariffs were not raised to cover genuine costs. Suppliers consequently suffered losses and inadequate cash flows. State governments absorbed the consequent losses to state electricity boards. But private distributing enterprises and generating companies suffered. This also has caused hesitation among investors in putting money into the electricity industry.

Coal nationalization (that happened almost 40 years back) is a holy cow. And despite possessing the fourth-largest coal reserves in the world, we are importing increasing quantities of coal. Some roundabout privatization has allotted captive mines to large power projects and these are coming up quickly and will be efficient. Nothing has been done to transform the efficiency of the government-owned coal mines. They are overstaffed, have old technology, high costs per tonne of coal produced, and are surface mines, leaving vast reserves unexploited.

Exploration, production and transportation of oil and gas have been a Central government monopoly, alleged by the comptroller and auditor general of India to have lost the country many thousands of crores of rupees in unnecessary favours given to private explorers, producers and transporters. Even after an independent regulator came into being, government prevented it from decisions by not notifying powers to it. India’s vast gas reserves largely remain below ground and the power sector has little of the clean and cheap fuel that gas would provide.

World prices of crude oil were on the rise. They have come down in recent weeks due to the slowdown in the United States of America and in Europe, but the coincidental rise of the rupee to around Rs 50 to the dollar has lost India any gains in the cost of imports. Our dependence on coal imports has been rising and is expected to reach 60 million tonnes or so this year and to rise to 90 million tonnes in 2013. Our principal supplier is Indonesia, though Indian companies have interests in coal mines in Australia and Africa, and coal from there will also come in future years. However, these countries are now regulating export prices to match market prices, and despite ownership of mines, Indian power companies will pay a lot more for the imported coal than anticipated. This will put additional pressure on power prices.

There is some scope for more hydro power generation, and nuclear power generation is to rise from almost 5,000 MW today to 20,000 MW by 2020. There is a concerted attempt to stimulate wind and solar powers. The Central and state regulatory commissions have laid down minimum purchases in each state for each of these, and special tariff and transmission incentives are provided to stimulate their use. All these will only contribute marginally to the country’s energy requirements.

India is in a difficult position in meeting its energy demand. Economic growth will require considerable growth in energy availability. A better life for all requires more electricity availability. There is not that much scope for India to make up for its needs by its own fuels — whether coal, gas, hydro or renewables. It will have to import fuels. That means rising costs that have to be borne by the consumer or subsidized by governments. People will have to be educated to pay and the numbers that are subsidized should be minimal. Efficiencies in generation, transmission, distribution and in use must improve significantly. Exploration and production of fuel resources within India must be accelerated.

None of these can happen without strong political leadership, determination and action. Government must move away from inefficient ownership of coal, oil and gas, and electricity distribution. Till privatization happens, management at all levels should be given to career professionals (and not merely to power engineers), and not to itinerant bureaucrats, moving from one ministry to another, without career interests or accountability in the energy sector.

Governments must be distanced from the electricity undertakings so that they can run efficiently. Independent regulation must be allowed to be truly so by appointments that are independently made, without incumbents being expected to be compliant with governments (as they are). Politicians and civil society must be given crash courses in the economics of energy so that they do not fight inevitably over rising tariffs. The media must educate itself on the power sector and its economics so that there are no knee-jerk reactions.

Like everything else in our slumbering governance, it is leadership that needs to be awakened if the mess that has been created over years of inept meddling is to be remedied. India needs more energy for its growth. The stumbling block is political leadership and the bureaucracy.