The process of reforms in the power sector has undergone a full circle with the outcome of this general election and the people's verdict in at least two key reform oriented states, Karnataka and Andhra Pradesh, necessitating a rethink of the issue. The Congress party which had made the question of free power for farmers a key election issue during the run up for the assembly polls in the state of Andhra Pradesh did no rethink on issue once voted to power. The new Chief Minister Mr Reddy, infact, made it a point to sign orders sanctioning free power for farmers from the swearing in venue itself, cheered all along by over 40,000 supporters who had come to witness the oath taking ceremony. The CM, along with free power for farmers, which is going to add another Rs.400+ crores to the states electricity subsidy bill currently at Rs 1300 crores, also signed orders waving electricity dues of nearly 1200 crores from farmers. Ominous signals for a state in financial disarray with stagnant revenue growth and interest liabilities of Rs 7000 crore /annum which , barring a miracle, are expected to worsen if the CM goes ahead as promised and sanctions free power to all household with a single point lighting connection.
Andhra Pradesh had been one of the states actively pushing for power and structural reforms with support from the World Bank. The CM in an effort to retain and build up his pro farmer image has promised a review of PPA's (Power Purchase Agreements) with private generators entered into by the previous TDP government. More disturbingly, its the ripple effect of Mr Reddy's policies that is a matter of concern for the power sector which seemed poised to take off in the wake of the Electricity Act 03.The ruling AIADMK in Tamil Nadu, which suffered its worst ever showing at the recent hustings, has been quick to follow Mr Reddy's initiatives and has also declared free power for farmers in the state as well. In Karnataka, where a pro-reform Congress was voted out, but is staged to come back in alliance with Mr Devegowda's JD(S), the new alliance is bound to follow a similar course. Mr Devegowda, a former Prime Minister, prides himself in being a Humble Farmer, and is likely to insist for the populist measure of free power for farmers.
Meanwhile Reliance Industries, the largest business group in the country, notched up yet another feather by winning NTPC's global contract for the supply of 3 million tonnes of gas/annum in Gujarat at $2.97/mmbtu, inclusive of all duties and transportation costs, from its KG fields. The lowest delivered price of natural gas quoted in the country, to date, compares favourably to the subsidised gas pricing regime, between $ 2.6- 3/mmbtu, currently in place in the country or the $4.87-$4.93/mmbtu band charged by Petronet LNG, India's first LNG importer. The new benchmark in gas pricing is near music for new gas based power plants proposed to be set up in the country but the AP CM's intent to renegotiate PPA's would certainly have come as shocker to the industry still struggling in the aftermath of the Enron saga. With Reliance breaking the psychological $ 3/mmbtu price benchmark for delivered gas the efficacy of a regulated natural gas price structure has been questioned by market forces and state owned energy PSU's would be hard pressed to met the challenge.
The new Union government, even before coming into office, has the work schedule clearly laid out. The issue i.e. financing of electricity subsidy, delayed till now, needs immediate addressing as also the passage of the Petroleum Regulatory Bill for any successful and sustainable reforms in the energy sector. Genuine government concerns on social responsibility withstanding, deregulated and competitive markets prescribe transparent government policy and the incoming coalition should find its hands full.
* Views expressed in this article are those of the author and do not necessarily reflect those of Observer Research Foundation.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
PREV
