More reforms needed to tackle Tamil Nadu power crisis

Since J Jayalalithaa came to power in Tamil Nadu a year-and-a-half ago, she has sought to manage the grave power crisis in the state by increasing tariffs, launching new projects, unveiling an ambitious solar policy and approving the bailout of the state utility. Yet, Tamil Nadu continues to be hobbled by a lack of adequate reforms, say those in the industry.

A decade ago, Tamil Nadu was power surplus, from which Gujarat’s then-new Chief Minister Narendra Modi wanted to draw lessons. The situation has turned on its head now.

At a recent seminar, Gujarat’s principal secretary in charge of energy, DJ Pandian, half-jokingly commented on how his wife used to want to settle down in her hometown Madurai till recently. Not anymore, what with Madurai facing power-cuts for more than half the day. In the decade when Tamil Nadu has fallen off its high perch in power, Gujarat has increased capacity two-fold.

So, what ails Tamil Nadu? For starters, Tamil Nadu, with about four gigawatt of power deficit and a power distribution utility having an accumulated loss of Rs 40,000 crore, remains one of the few states to provide free power to agriculture. The state government does provide subsidies to its generation and distribution utility Tangedco but that’s hardly enough to compensate losses fully.

This is why: the average cost of service by the utility to the subsidised group was Rs 5.96 per kilowatt hour (in 2011-12) while the subsidy provided by the government was only 25 paise per unit. Though it was increased this year, that won’t be enough.

Speaking earlier this year to ET, Devendra Kumar Pant, head of public finance at Fitch India Ratings and Research, said wherever power for agriculture has been free, it has had an impact on the overall financial viability of the state utility. “Some sort of cross-subsidisation is acceptable, but when it is totally free there is no economics and optimal utilisation.”

The price agriculturists pay for power on an all-India basis is about 27 per cent of what domestic consumers pay. While in Gujarat it is 42 per cent, in Bihar it is 21 per cent, those in Haryana and Andhra pay 8 per cent. In Punjab and Tamil Nadu, it is free.

What’s even more remarkable in Tamil Nadu’s case is that the free power isn’t metered. “Even in Punjab, the free power is metered, so in the case of Andhra Pradesh. Since in Tamil Nadu it is not metered it is very difficult to determine the level of subsidy,” according to S Kabilan, former chairman of the Tamil Nadu Electricity Regulatory Commission.

What has added to the woes is the improper unbundling of the state power utility, which was mandated as per the Electricity Act of 2003. The utility was unbundled into Tamil Nadu Electricity Board, the holding company, and two other companies for transmission and generation and distribution. “The unbundling was done as just an accounting procedure. The spirit of restructuring was not maintained. And the assets are yet to be transferred,” said Raghuttama Rao, managing director of ICRA Management Consulting Services.

In 2010, the former regulator Kabilan said, it was suggested to the state government that regional autonomous distribution companies be created in ChennaiVellore, Madurai and Coimbatore to ensure efficiency. They weren’t. Gujarat has four companies just for distribution.

Kabilan said, “The chairman’s time is spent fire-fighting with all the developers and in negotiation of tariffs. Sitting at the headquarters, he cannot be expected to know the problems of all regions. So, we suggested having separate regional companies, which was not done.”

What more, the regulatory commission has been without a head for almost a year now. “There has been lot of political interference in functioning. It is not allowed to function independently, which has been a problem in the reform process,” said Kabilan.

Jayalalithaa raised power tariffs by 37 per cent this year, an increase that has come about for the first time in eight years. Between those years, 2003-11, the average revenue realised increased just 3.4 per cent while the cost of supply increase by 11.5 per cent.

In an earlier report, Sbicap Securities said it expects an average hike of 36.5 per cent in FY13, 15 per cent in FY14, followed by a yearly hike of 5 per cent till FY17. That’s because, right now, amongst utilities, Tamil Nadu’s utility has the highest negative net-worth.

Despite all evidence pointing to the need for further reforms, they may not come about easily. With parliamentary elections just over a year away, the opposition has already spotted the power crisis, something that Jayalalithaa inherited from the previous DMK government, as an issue that resonates deeply with the people.

Any further reforms, including a tariff increase, which doesn’t lead to any immediate benefits, could be extremely difficult politically, reckon observers.

Source: Economic Times

About Ritesh Pothan

Ritesh Pothan, is an accomplished speaker and visionary in the Solar Energy space in India. Ritesh is from an Engineering Background with a Master’s Degree in Technology and had spent more than a decade as the Infrastructure Head for a public limited company with the last 9 years dedicated to Solar and Renewable Energy. He also runs the 2 largest India focused renewable energy groups on LinkedIn - Solar - India and Renewables - India
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