A reforms drive

The State government is moving towards radical reforms in the areas of infrastructure and administration.

CHIEF MINISTER Amarinder Singh came to power promising a radical break with the past. "The problem is that we're too worried about what happened in the 16th century to get on with building our future,'' he said soon after taking office. "My job is to create a resurgent and modern Punjab.''

A year on, the process of reform is well under way. A dramatic drive against corruption, which has put dozens of government officials and politicians behind bars, is just the most visible sign of an effort to transform the administration, introduce financial discipline and streamline the delivery of public services. Revenue receipts grew by Rs.540 crores in the first nine months of the new government, despite a sluggish overall economic environment. The revenue deficit came down by Rs.415 crores, and the fiscal deficit by Rs.1,057 crores. The disinvestment of five major public sector corporations has been placed on the fast track in order to raise more funds for infrastructure investment. Non-Plan expenditure has been cut to an eighth of the levels that prevailed during the Shiromani Akali Dal-Bharatiya Janata Party rule, and proceeds from a welter of user charges introduced for services like water supply are being ploughed back to improve the infrastructure. Road and bridge projects worth Rs.261 crores are nearing completion, and the work of widening key road corridors, like the Chandigarh-Ludhiana highway, has been accelerated. After decades of stagnation, Punjab is on the move again.

Perhaps Punjab's most ambitious reform programme involves an effort to corporatise, unbundle and finally privatise the Punjab State Electricity Board (PSEB). The SAD-BJP coalition government had sought to win political support by making power available free of cost to all farmers. It ended up depriving the PSEB of revenue. As a result, farmers ended up receiving very little power, since the PSEB simply could not afford it. Also, free power supply made the water use pattern inefficient. The government has now braved protests and withdrawn the free power plan, pointing out that consumers are willing to pay for power in return for assured supply. User charges have also been put in place for canal water, so as to be able to fund the maintenance of the irrigation system.

Punjab's road-map for power sector reforms was drawn up by an 11-member expert group, headed by Gajendra Haldea. The Haldea Committee was charged with the task of suggesting the means to break up the PSEB into several units, which would function in a corporate fashion and would finally be privatised. Its draft report, presented before the Chief Minister on March 6, is to be made public for a debate. The government hopes that all the groups concerned will join this debate, in order to build a consensus on power sector reforms. These reforms are seen as being crucial to the future of Punjab's efforts to revive its industrial and agricultural sectors.

Broadly, the Haldea Committee has made five major recommendations. First, it has made clear the need for a clampdown on power theft, through legislation. A Bill targeting power theft is to be introduced in the ongoing session of the Punjab Legislative Assembly. Second, the committee has recommended higher tariffs for all categories of consumers. Third, it has suggested that power supplied to the agricultural sector be metered, a move that will have the additional effect of putting in place restraints on the excessive use of groundwater resources and canal systems. Fourth, the committee has called for a reduction in staffing levels in the PSEB, by means of a voluntary retirement scheme. Finally, it suggested debt be restructured. All these measures, it argues, will ensure the supply of "reliable power at competitive and affordable tariff to all categories of consumers''.

According to the Haldea report, only 52 per cent of the power supplied by the PSEB is actually being billed, while 23 per cent goes to the agricultural sector, where no metering system exists. Over a quarter of the power is estimated to be lost in transmission and distribution (T&D); and 8.5 per cent is estimated to be stolen. The PSEB is now engaged in an energy audit to see how T&D losses might be minimised. Electronic meters are being installed along all incoming and outgoing feeder lines, and the process is expected to be completed by the end of 2003. All electro-mechanical meters are to be replaced with electronic meters over a five-year period. Random checks on meters are on to check tampering. Until the end of 2002, some 945,000 connections were checked and 180,000 cases of tampering were detected, involving a theft of Rs.71 crores. The raids have already led to a decline of some 1 percentage point in T&D losses. The new anti-theft legislation, it is believed, will lead to further improvement.

In the years to come, PowerCom, a holding company, will inherit much of the PSEB's central infrastructure. There will also be an independent transmission company, separate generation companies handling hydroelectric and thermal power production, and three or more competing distribution companies. The transmission company is expected to "wheel'' power on payment and not engage in either buying or selling power. The most radical recommendation, however, concerns "open access'' to T&D, which will mean allowing private companies to engage in these transactions. The committee has emphasised the need for "quality'' power to be supplied to rural areas, and has suggested that supply be increased by 15 per cent each year for the next five years. Without reform, every additional 100 MW of generation and supply will add to the PSEB's losses by Rs.70 crores a year.

Apart from infrastructure reforms, the Haldea Committee has suggested downsizing the PSEB by some 15,000 personnel. At present, 70 paise out of every rupee paid by consumers goes to meet the PSEB's salary costs. Predictably, PSEB employees are less than delighted about the prospect of downsizing. Yet it is clear that the PSEB is terminally unwell. Its cash losses at the close of the 2002-2003 were estimated to be around Rs.600 crores, the situation aggravated by the impact of last year's drought conditions. It received a sum of Rs.950 crores as subsidy from the government in 2002-03, which is about 1.3 per cent of the gross State domestic product, and its fiscal burden is 2 per cent of the GSDP.

The committee suggested converting outstanding government loans to the PSEB, amounting to Rs.4,537 crores, into equity. Coupled with the existing equity of Rs.2,806 crores, the total will be Rs.7,343 crores. Of this, Rs.5,000 crores may be allocated as the equity of successor companies other than PowerCom. This can then be serviced in lieu of the current provisions for interest payment on government loans and return of net fixed assets. The balance equity of Rs.2,343 crores cannot be serviced out of consumer tariffs and may be parked in PowerCom and recouped subsequently from the proceeds of disinvestment.

Power is not the only area where the government hopes to bring about significant cuts in expenditure. The axe is to fall also on its employees. The Chief Minister is considering proposals made by the World Bank for radical administrative reforms.

It suggested that the numbers of government staff be reduced, that legislation be introduced to end politically motivated transfers, that the recruitment and procurement processes be made transparent, and that the delivery of services to citizens be upgraded.

Punjab has just completed a census of its core employees, a first step towards scaling down personnel numbers. According to official figures, Punjab has 321,811 core employees, whose annual wage bill is Rs.4,112 crores. This number excludes the employees of public sector undertakings, the PSEB and teachers of publicly funded grant-in-aid schools.

It is evident that Amarinder Singh's plans will provoke bitter opposition from the vested interests that have profited from a corrupt system.

Such opposition will ensure that change, most likely, will come slowly. Yet, the fact that real reform is now on the agenda is a breakthrough in itself.