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Tackling Indian energy reform

Hydrocarbon Engineering,

William J. Antholis of the Brookings Institute explains that Indian power is notoriously unreliable. On the last day in July 2012, over 600 million people in the country are estimated to have experienced a blackout, approximately half of India, and around twice the population of the US.

The blackout covered 19 of the country’s 28 states plus the National Capital Territory of Delhi. Three interstate grids had failed: the northern, northeastern and eastern.

The blackout shut down factories and office buildings, traffic lights and trains. However, perhaps more alarming, according to Antholis, is just how much of the region was able to function without public electricity.

A great number of Indians have no public electricity. For those who do, power shortages and blackouts are commonplace. Many already rely on diesel generators, especially airports, hospitals, and many factories that demand continuous power to remain operational.

Regardless of income or status, power in many neighbourhoods runs only at certain times.

An exception to the rule

There is one state in India that is significantly better than any other when it comes to power supply, where there are no blackouts and 100% electrification: Gujarat. There, Narendra Modi has successfully tackled energy reform. His secret is making people pay for power.

As Antholis accentuates, this may seem obvious, however in Indian politics it has been an extremely difficult feat. During years of socialist rule, India established a range of subsidies and discounts that provided low cost or free electricity to its rural and poor populations. As a result, a huge number of Indians claim to be rural and poor when they are neither. Most Indians do not directly pay anywhere near the full cost of electricity.

According to Antholis, much of the blame lies with state governments. Approximately 40% of all electricity generating capacity is owned or controlled by state electricity boards, and they are particularly prone to interfering with utility companies, trying to establish a real market for electricity. The central government controls approximately 30%, and the rest is supplied by private enterprise.

Most state electricity boards cannot acquire adequate fuel or fully operate power plants because they either set prices too low, or fail to collect fees, or both. Together with central governments, the state electricity boards also help to build and maintain transmission lines – or not to maintain them as the case may be.

Even in ‘normal’ times, 25% of power is lost in transmission, according to Brookings. This is due to a combination of ageing infrastructure and outright theft. India needs to invest approximately US$ 2 trillion in transmission upgrades alone.

State of reform

In 2004, under Modi, Gujarat did what no other state has yet fully implemented, and send officials door to door to see who was poor and who was not. Moreover, the state also separated transmission – including collection of fees – from production of power. Those two steps allowed for the state-managed transmission company to effectively charge and collect fees. It also allowed private power companies to charge and collect a fair price for the energy that they were supplying to the grid.

Gujarat’s farmers were willing to pay as soon as they realised that power would be more reliable. When Antholis interviewed Modi in 2012 he said: “Once farmers had poer, they wanted to buy electrical appliances. Now we have high quality power all day, every day, in every village”.

Andhra Pradesh, Tamil Nadu and Maharastra are now trying to follow suit. Each has learned that getting prices right on electricity is critical to industrial future. In the last ten years, each raised electricity prices despite political opposition. These states have also tried to cut down on energy theft and false claims of rural poverty, and as a result, they now provide electricity to 90% or more of their populations.

Antholis accentuates that every state will need to improve service delivery and build capacity for price reform and fee collection regardless of political inclinations, if India is every to achieve reliable power on a national level.

Adapted from a report by Emma McAleavey.

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