Few state governments have fully realised the consequences of the disastrous years of power sector reforms. For almost a decade now, even after inviting private investments, capacity creation has lagged behind targets. State Electricity Board (SEBs) finances are going progressively deeper into the red. The cream of revenue for the SEBs -- the industrial consumers -- are busy setting up their own captive generation capacities. SEBs will soon be left to deal only with the domestic and agricultural consumers, who are currently subsidised.
Yet there is hope. And as the saying goes, better late than never. A few states are showing willingness to straighten out their SEBs along the lines of the Orissa model.
But what is not very obvious is that it would take a lot more grit and determination for other states to carry out reforms than was demanded of Orissa. Agriculture consumes just 3 per cent of power in Orissa, while in most other states it uses up over 30%. What makes matters worse is that an agricultural tariff in most states is below 20 paise per unit (nil in Punjab) against an average cost of 240 paise per unit. Moreover, in most areas agricultural consumption is not even metered.
Once consumption begins to be metered and a bare minimum tariff of 50 paise per unit levied, the farmer's electricity bill is sure to explode. As such there is a possibility of a political backlash against the ruling party when the state goes to the polls. That is the reason why the fast-paced SEB reforms in Haryana came to a sudden halt on the eve of the elections in the state.
There are solutions, however. For one, time-of-the-day tariffs with low tariffs for off-peak hours would reduce the burden on the consumers. Secondly, the efficiency gains which will come through elimination or reduction of transmission and distribution losses (part technical, but mostly theft and pilferage) would ease the pressure on tariffs. Thirdly, the improved financial condition of the state power utilities would reduce the risk premium on returns demanded by investors. Tariffs on the new power projects would be correspondingly lower.But the majority of the states are yet to realise this. Only a few are pushing for reforms. Others will necessarily follow. Do they have any choice?