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Playing power games

Nandini Lakshman | August 21, 2004

It was an unexpected blackout. In the last two weeks, more than a dozen powerloom outfits and sugar factories in western Maharashtra and parts of Vidarbha district, had their electricity connections cut off by the Maharashtra State Electricity Board.

Astonishingly, 10 belonged to state politicians -- current and ex-ministers. Among the ministers who suddenly found themselves out of power, so to speak, were Power Minister Jaidatta S Kshirsagar, Home Minister R R Patil and former Revenue Minister Shivajirao Patil-Nilangekar.

The heavyweights had all failed to pay their MSEB dues and owed arrears totalling nearly Rs 2 crore (Rs 20 million). Ever since the power was cut some ministers have been trying to save face and have made public statements that they gave the power utility, the go ahead to take action against defaulters including the politicians. MSEB officials say the ministers were caught off-guard by the fast-paced action.

What's behind these moves? There's a new man at the helm and he's losing no time to make his presence felt. The MSEB's new chairman is tough-talking Jayant Kawle, 48, who was earlier the state's energy secretary. He officially took charge of the country's largest SEB in June, from Asoke Basak who was on extension.

Kawle is in a hurry to change MSEB. He is the fifth person to be in the hot seat of the country's largest state electricity board in just four years. As a power expert says, "There is no continuity with the state government appointing MSEB chiefs like it's changing shirts."

MSEB was preparing itself for change during Basak's tenure to fit the needs of the Electricity Act 2003. In fact, its workforce of over 100,000 represented by 50 unions, was finally coming around to the understanding that change -- a trifurcation of its operations into generation, transmission and distribution -- was inevitable. That's when the Congress government came to power at the Centre and the utilities were given an extension till December to implement these changes.

That deadline is likely to be pushed back even further according to MSEB officials. The assembly elections in Maharashtra are scheduled in the next two months and the new government will take charge only after that. "The incumbent power centre will be in no tearing hurry to remedy matters as there will be a lot of vested interests," says an MSEB official.

But time is running out in other ways for MSEB to clean up its act. The board will soon lose its monopoly status. Till now the ailing SEBs had exclusive rights over intra-state transmission of electricity, but now any private player will be able to sell to any customer. It will be allowed to use the board's transmission network by paying a wheeling charge.

Making matters worse is the state government's recent announcement promising free power to the farmers, in the run up to the assembly polls. The state chief minister Sushilkumar Shinde admitted that MSEB would lose Rs 400 crore (Rs 4 billion) every quarter as a result of the move. Says Kawle, "This proposal will reverse all the reform initiatives which have been taken in the last five years."

MSEB is determined to fight tooth and nail against free power. The state government has the prerogative to grant subsidies. However, the government has to pay MSEB, in advance for the revenue loss arising out of free power to farmers.

A strongly-worded letter presented by MSEB officials to the government puts the current subsidy amount at Rs 1,591 crore (Rs 15.91 billion), to be provided by the government in this fiscal budget. Today, the total receivables from the farm sector are a whopping Rs 2,213.14 crore (Rs 22.13 billion), down from Rs 2,858.26 crore (Rs 28.58 billion) last fiscal.

MSEB has made a proposal that since current dues are to be waived, it was only logical to write off the farm sector arrears. "Otherwise there could be a situation where the current bills are paid by the government on behalf of farmers and the connections are still disconnected due to arrears," says Kawle.

The farm sector issue has thrown the spanner in the works for MSEB. Only last year it hired consulting firms PricewaterhouseCoopers and SBI Capital to draw up a proposal for reorganisation. One key aim was that a restructuring should infuse large doses of accountability and commercial transparency into MSEB's operations.

Mind you, MSEB has a long journey on the road to reform. Its current arrears are pegged at Rs 8,500 crore (Rs 85 billion) or 250 days of revenue. Agri-receivables are two-and-a-half years, power looms is two years, water supply works two years while industry is less than a month.

Then there's the demand-supply mismatch. At peak hours, total demand in the state varies from 12,500 MW to 10,500 MW. The current shortfall in the state is around 2,500 MW, which is likely to go up by 9,000 MW by the end of this decade.

If this is to be avoided the state will have to add capacity every year. In July, in fact, the Union power secretary went on record to say that 1,000 MW of power will have to be added every year to Maharashtra's generating capacity till 2011-12. And the price? Around Rs 4,000 crore per annum for generation, with an equal sum for transmission and distribution.

Is that a tall order? Definitely. There is new capacity being added, but it is all in the private sector and it's costly. Currently, Reliance Energy with 850 MW capacity is adding 3,750 mw in 30 months.

Tata Power Company's current capacity is 2,186 MW. It plans to increase it by 1,000 MW. Kawle says, that if need be, it will buy power from Reliance's plant at Nagothane, which will generate 3,000 MW and TPC's 1,000 MW plant at Vile Bhagdi.

In recent months, MSEB, whose generation costs are Rs 1.10 per unit, has been subsisting on expensive power from other utilities, shelling out almost Rs 120 crore (Rs 1.2 billion) a day. This when load shedding varies from 1,500 MW to 2,000 MW.

It pays Power Trading Corporation Rs 2.30 per unit while the National Thermal Power Corporation average is Rs 1.80 per unit. It takes 100 MW from Tata Power and 120 MW from Adani Exports.

Additionally, there's the problem of transmission & distribution losses. Three years ago, at 15 per cent, it had the lowest T&D losses in the country. Last year, it had more than doubled to 37 per cent. Kawle says that this year, it is 38 per cent.

So what is MSEB doing now? "MSEB needs to be broken up into eight companies," says Kawle. According to him, apart from companies for generation and transmission, there have to be two urban and four rural companies for distribution. "By bundling rural and urban together, we are not gaining anything," he adds.

For the past one year, MSEB has been working hard to spruce up its balance sheet, which saw a cash loss of Rs 726 crore (Rs 7.26 billion). It has been installing new meters and replacing old lines, transformers and other equipment. An amnesty scheme has got underway to convert illegal users in the commercial sector.

Meanwhile, the MSEB is ramping up capacity -- but not as much as necessary. It's expanding its 700 MW plant at Parli in Bheed district by another 250 MW. Paras' 60 MW plant will see a 250 MW infusion. Its 900 MW Uran plant will go up by another 400 MW. There are also plans to offer the agri-sector incentives to use power during off-peak hours.

Is this enough to take on private sector competition? "Nobody will be able to compete with us on cost," says Kawle.

Also, ever since the clamp down on sugar barons, MSEB officials say that collections from the sector are up. "But for every one step forward, the government or the regulatory body pulls us down two notches," states an MSEB official. No wonder Kawle says, "Being here is like sitting in an electric chair."

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