Wednesday, May 26, 2004

Power: PM Sayeed says 'free power is okay' provided it is paid for!

News from The Hindu

Sorry for the corny title. Sayeed seems to indicate it is okay for any state to provide free power to any specific section of its people, provided the State Government makes allowance for the same in its budget, and pay the generation and supply company appropriately.

The new victorious Andhra Pradesh Government announced that farmers will get free power, thinking it was this issue which really threw Chandrababu Naidu of TDP to lose power. The Tamil Nadu state government headed by AIADMK which lost the Lok Sabha elections badly, also gave free power to its farmers.

However the Prime Minister Manmohan Singh has clearly showed his unhappiness over giving away any utility free. There are other ways of providing the subsidy, the one that was partially rolled out in Tamil Nadu, but has however been rescinded now. This method enforced setting up of electricity meters to all the farms, monitored the usage and asked the farmers to pay the electricity charges. The state government then paid this money back to the farmers as subsidy.

You may ask: "What is the big difference?"

The difference is huge. In case of free power, there could be reckless usage. There is no monitoring. Also the farmers fear that, the subsidy amount may be restructured at a later stage. For example, a new governmental initiative may say all small farmers - those that use less than a certain amount of electricity and use a smaller field may get 100% subsidy, while the medium range farmer gets only 75% subsidy and large farmers get only 50% subsidy. Farmers, particularly the big ones, obviously do not like this. So they do not want to even open this area up and give in to Governmental pressure.

There is also the cash flow management - which is admittedly a problem for the small farmers. You have to pay upfront and then expect the money to come back to you from the government and this could take 3-4 months. Also unscrupulous officials can ask for bribes to release this money, or take a commission in this amount. However, such problems aside, the state governments will still have to institute this sort of a disciplined approach.

As we move towards private power distribution companies, we cannot live with this unmetered power distribution. While I am all for giving measured, and justified subsidies to farmers, the farmers will also have to be made aware that there is a cost to the Government in providing free power. One may even have to charge for agri water - perhaps a nominal charge - to encourage more sensible use of the water. There could be subsidies here too.

Then there is the issue of state fiscal deficit, if electricity is given free. The assumption by most of the states is that somehow centre will pick up the tab. When the states reel under pressure to pay the salaries (a bit on the higher side because of the fifth pay commission) of their employees, there is no money in the coffers. There is additional borrowing, which results in huge interest costs. It appears that a lot of state governments have very high cost debt, of money borrowed from the central government.

On other matters, PM Sayeed has given some statistics:
Tenth Plan, 23,000 MW was being commissioned in the Central sector and 11,000 MW in the State sector; only 7,000 MW was being set up in the private sector. The total additional power generation target was 41,000 MW.
So we are massively behind target, and the private sector has not trumped up enough. The key job for the ministry would be to find more private participation (despite whatever the Left may say), so that they produce at least 50% of the target in the medium term, with the remaining 50% produced by State and Central.

No comments:

Post a Comment