The price of reforms

Protests force the Delhi government to withdraw the recently imposed power tariff hikes, but the larger issues of access to power and electrification of the homes of the poor in the wake of power sector reforms are yet to be addressed.

AMAN SETHI in New Delhi

IN what is seen as a victory for the people of Delhi, Chief Minister Sheila Dixit announced the rollback of hikes in power tariffs for domestic and agricultural consumers in the National Capital Region (NCR). Explaining that the government was sensitive to the concerns of the people, the Chief Minister said that it would provide adequate subsidy cover to ensure that tariffs did not increase this year. The formula for the subsidy is still to be worked out.

The 10 per cent hike in the power tariff for domestic consumers, announced on July 7, would have been the second such since the state-owned Delhi Vidyut Board (DVB) was unbundled in June 2002, into a holding company, a generation company, a transmission company and three privately owned distribution companies (DISCOMs) - New Delhi Power Ltd. (NDPL), BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd. The tariff increase announced for agricultural consumers was 20 per cent.

A major issue highlighted in the protests over the tariff hike was that while tariffs had risen significantly, the power situation in the capital was yet to improve. Another important issue was "meter terrorism". Over the past three years, the Tata-owned NDPL and the Reliance Group-owned BSES companies had changed electricity meters across the city. While the DISCOMs claimed that the new meters reduced power leakage and loss, residents alleged that the meters were faulty and the electricity bills shot up after they were installed. The prospect of being forced to pay an additional 10 per cent galvanised the middle class into action.

The protest against the tariff hike was noteworthy for several reasons, including its methods, strategies and participants. Unlike most protests, it was not led by any political party. While the Opposition parties did take a stand against the tariff hike (as did many people in the government), they never quite managed to appropriate the leadership of the movement. Instead, the fires of protest were kindled by a number of prominent Resident Welfare Associations (RWAs), which asked its members to refuse to pay the additional 10 per cent and urged other citizens of Delhi to follow suit. While effectively deploying the ideas of "civil disobedience" and "people's power", the RWAs used the media as the primary means of exerting pressure on the government. After a protracted struggle, the government relented.

"Our agenda is very clear," says Sanjay Kaul of People's Action, one of the major coalitions of RWAs in the city. "We want an end to tariff hikes and meter replacements. We also want the entire privatisation process to be reviewed. Tariffs continue to rise while the service is yet to improve." Inspired by the success of the protest, Kaul plans to take it ahead and herald a "middle class revolution".

It is important to note that the protest was a middle-class and upper-middle-class movement and not a "mass movement" as described by certain sections of the media. Most of the RWAs represented regions inhabited by the wealthy, such as Defence Colony, Greater Kailash and Panchsheel Park, and had well-defined and narrow interests. Kaul categorically states that People's Action is a lobby group for middle-class interests and feels that "vote-bank politics" has ensured that the middle class has been marginalised. The middle-class background of the participants is a major reason why the protest received the media support that it did. Another important point is that the RWAs are not calling for an end to privatised power distribution. They are asking for enhanced competition through open access and better results.

SO, have the power sector reforms in Delhi failed? They were introduced in an attempt to reduce the DVB's transmission losses, which were pegged at 58 per cent. The DISCOMs were asked to bid on the basis of a proposed reduction of Aggregate Technical and Commercial (AT&C) losses, and accordingly, annual loss reduction targets were set. Improved efficiency, loss-reduction bonuses and a government guaranteed 16 per cent return on equity were supposed to ensure profitability for the private companies.

Jagdish Sagar, the last Chairman of the DVB, points out that the reforms are living up to their claims. AT&C losses in the NDPL sectors are down from 48.1 per cent in 2002 to 33.79 per cent in 2004-05. Even BSES Yamuna, the worst-performing DISCOM, has reduced losses from 57.2 per cent to 50.12 per cent. Sagar says: "Power sector reforms were inevitable. By 2002, the DVB had liabilities worth Rs.23,137 crores and was continuing to lose money. Unbundling was the only way out." Sagar points out that the percentage of required power shedding has come down to 0.85 per cent - the lowest since 1991.

It may be true that less power is lost and load shedding has been reduced significantly. However, privatisation was sold as the silver bullet to Delhi's power woes. Predictably, performance has failed to meet expectations. This, coupled with faulty meters and rising tariffs, could be why the public reacted the way it did.

However, the DISCOMs are far from blameless. An examination of the Aggregate Revenue Requirements (ARR) filed by BSES Radhani and Yamuna show that the Reliance Group filed for an ARR of Rs.1,400 crores and Rs.1,165 crores respectively, against NDPL's ARR of Rs.361.11 crores. In its response, the Delhi Electricity Regulatory Authority (DERA) sanctioned only Rs.477 crores and Rs.446 crores for the two companies. While this is not evidence of corruption per se, it illustrates that the DISCOMs are a far cry from the efficient, thrifty corporates that the government imagined them to be. (The ARR is a detailed account of a DISCOM's proposed expenses for a year. It includes the money required for power purchase from the transmission company, administrative and general expenses, capital investment and a 16 per cent return on equity. Given the revenue requirement of the DISCOM, and taking into account the subsidy provided by the government for a given year, the DERA sets the tariff for the year.)

While the RWAs and the DISCOMs continue their public blood feud, the real story has been buried under a heap of performance targets. The essential problem with the public discourse on power sector reforms is that it has adopted the language of the DISCOMs. An evaluation of reforms purely on the basis of systemic parameters such as loss reduction, load shedding percentage, and transformer failure frequency glosses over some harsh truths.

In their paper, "Impact of power sector reform on poor: A case study of South and South East Asia" (TERI Project Report No. 2002 RT 45), A.R. Sihag, Neha Misra and Vivek Sharma illustrate how privatisation of power distribution in Orissa, Karnataka and Himachal Pradesh has caused a dramatic reduction in the poorer sections' access to and consumption of power. The study says, "[In Orissa] it is observed that the electrification levels for the non-poor have increased, whereas electrification levels for the poor have gone down in the post-reform period. The electrification levels for the non-poor have increased from 47.60% in 1999-2000 to 56.06% in 2001-02, whereas electrification levels for the poor have decreased from 3.67% to 3.31% in the same period." Similar trends were observed in Karnataka and Himachal Pradesh.

To understand why the reform process reduces access to electricity, one must examine how the poor gain access to it in the first place. In Delhi, power can only be supplied to residential areas deemed "authorised" by the local municipal council; "un-authorised colonies" exist outside the formal power supply network. These colonies cannot get access to power even if they are willing to pay for it. Thus, a poor person who cannot afford to live in an authorised colony is expected to forfeit any claim to water, electricity or any other state-sponsored service. Such a system would be untenable if it were not for quasi-legal interactions between the residents of an unauthorised settlement and the local municipal machinery. Under a state-owned network, a certain grey area of legality is established whereby the poor are offered minimal access. However, once the network is privatised, these informal arrangements are not recognised and access is immediately denied. Another reason for reduced access is that post-reform tariff hikes force many existing customers to terminate their connections. The third possible reason is that private companies are reluctant to invest in areas where the return on investment is low.

While no similar study on the impact of power sector reforms on the poor in Delhi is immediately available, there is no reason to believe that Delhi's experiences have been substantially different from those in the rest of the country. Residents of Mangal Khoka, a slum in Ramakrishna Puram, told Frontline that they had been engaged in a running battle with their DISCOM for the past two years. "What else can a poor man do? The government won't even let us buy electricity," said Kamal Singh Ujala, a resident of the slum.

This does not mean that the only means to supply power to low-income groups is through illegal networks of tapping and theft. Instead, the message is that reform in such essential sectors is meaningless unless supported by a parallel system of entitlements. A good example is documented by the TERI report. In the Philippines, private participation in the power sector was accompanied by legislation that mandated the expansion of power services to the rural areas and compulsory levying of a universal charge for meeting the subsidy requirement for the electrification of homes of the poor. Unfortunately, the Indian Electricity Act, 2003, while imposing strict penalties on power theft, contains no specific provisions dealing with the economically weak sections.

In a lecture titled "The Three Rs of Reform", the Nobel Prize-winning economist Amartya Sen suggests that every reform process be evaluated on the basis of three parameters - reach, range and reason. He explains that each process should be assessed on the basis of the sections of society it would affect, the ways and means by which it would affect change, and the reason for such a change. Not only must the end result of a reform process be "person-related", but the means also must be so. If these parameters were to be applied to the power sector reforms in Delhi, the results are rather disturbing.