Orissa versus Rest of India

The Orissa Electricity Regulatory Commission, The Financial Express reported a few weeks ago, has rejected the demands by the main supplier of electricity, the state-owned Gridco, as well as by various privately-owned distribution companies to hike tariffs -- for the 12th year in succession.

Clear evidence, you'd think, that the power reforms that began in the state several years ago are paying rich dividends -- when electricity production costs go up, as they are in every state including Orissa, the only way to keep tariffs constant is to dramatically lower theft levels.

An example should make this clear. Let's say the cost of producing electricity is Re 1 per unit and 100 units are produced; if theft levels are 50 per cent, the electricity company has to sell each unit at Rs 2 to just break-even.

If, however, theft levels fall to 20 per cent, the same electricity can now be sold at just Rs 1.25 per unit! So how did Orissa pull off this miracle of dramatically reducing power losses?

Go to the OERC website (www.orierc.org), and you find it hasn't done anything of the sort -- theft levels are still 42 per cent and have been coming down by just 1-1.5 per cent per year, which is nowhere near what is required, considering that Gridco wanted to hike the tariffs from Rs 1.2 per unit to Rs 2.1 per unit.

OERC pulled this off by doing two things. While Gridco's 2009-10 revenue shortfall was projected at Rs 1,641 crore, it did not take into account past losses of Rs 866 crore (!); the rest, it said, could be made up from trading -- that is, buying power at low rates within the state and selling it at substantially higher prices outside.

In other words, keep the consumers within the state happy, but charge higher tariffs to the Rest of India!

To put this in perspective, it's like the Bihar government saying it will charge one royalty if the coal mined from the state is used within the state, and triple that if the coal is sold outside; ditto for Punjab's wheat; and so on.

So, from being one common market with one common price, which changes only to take into account local taxes and transport costs, it's being broken up into many different states.

Sadly, the matter reached the Supreme Court last year and two judges actually said it was all right for the OERC to behave in this fashion (http://www.business-standard.com/331725/), and the matter's fuller ramifications were never brought before a bigger bench on appeal.

So, how much does Orissa make out of fleecing the rest of the country? In 2008-09, Gridco bought power for Rs 2,351 crore and its gap of Rs 410 crore was to be made good in this manner; in most years, this gap that has to be made good through trading is around 20

per cent.

What's even more interesting is where Orissa gets the 'extra' power to sell. Actually, it's not really 'extra' since a fourth of the state doesn't have electricity connections, and we're not even talking of the shortage in supply to those who have electricity connections, but ignore this.

Orissa gets low-cost power from various central government-owned power utilities, the power-generating stations it owns as well as from captive power plants which have surpluses at various points in time.

But if you can sell electricity to other states like Haryana and Delhi at Rs 10-12 a unit, why don't these privately-owned captive power plants do it themselves, why sell it to Gridco at a third/fourth the price and let it pocket the money?

Simple, the government-owned/controlled power bodies including, sadly, the OERC, do not allow these firms to sell their power outside the state, in complete violation of the law which says 'open access' is mandatory. It's best to quote from the OERC order on this since it's difficult to believe it has been so brazen:

"Following the promulgation of (the 'open access' law), CGPs (captive generating plants) are increasingly interested to sell the surplus power outside the State at market-discovered price which is very much lucrative because of deficit power scenario in the country."

"The Commission considers it fit and appropriate at this stage to pass an interim order to enable harnessing of the available idle/bottled up capacity of CGPs at a reasonable price while at the same time not burdening the users of electricity "

"Gridco can procure power from CGPs in and around a reference point of the highest generation costs, currently being procured by Gridco" -- this means Gridco can buy power from CGPs at around Rs 2.5-3 a unit and then sell it at triple this. OERC, in fact, has a section on how Gridco should increase the price for CGPs a bit so as to make "available a good quantum of power for trading"

"This is necessary for the benefit of the consumers of the State because the profit earned by GRIDCO from the trading will be taken as 'other receipt' to meet its revenue requirement" -- after bridging this gap, the balance, if any, OERC is magnanimous enough to say, "may be shared with the CGPs/Co-generation plants at the year end."!

Apart from being unethical and just driving up electricity pricing, this is also illegal, if you go by the Electricity Act and the ruling of the Appellate Tribunal for Electricity in November 2006 -- the ruling which, sadly, two judges of the Supreme Court struck down.

It'll only be when other states start following this discrimination for a large enough number of products, presumably, that the political class will wake up to it. Hopefully, the courts will too.