Power Shock!

August 16, 2012

By Gnani Sankaran

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[This article originally appeared in Gnani Sankaran’s website, and has been translated by Reva Yunus and Sridhar S. It is a review of S. Gandhi’s book Tamizhagattil Minvettum, Minkattana Uyarvum – Karnamum Theervum, which outlines how increased privatization in post-liberalisation India has led to the ruin of state Electricity Boards. -Ed.]

May and June saw shocking increases in electricity bills in Tamil Nadu. Despite load shedding for two hours every day, bill amounts rose two to three times the usual amount. Over the last one year Tamil Nadu saw increasingly severe shortage of power, making it possible for authorities to claim that Kudankulam is the sure cure for all the state’s power ills. However, what little improvement was seen in the power situation in the last month, has been due to wind energy, not nuclear energy. In any case, with all the legal issues surrounding it, it may be December before the Kudankulam plant becomes operational.

The present Chief Minister has argued that tariffs must be increased to save the Tamil Nadu Electricity Board (TNEB) from bankruptcy. The AIADMK and DMK have exchanged plenty of arguments as to who is responsible for the Board’s precarious financial condition.

These arguments aside, a book written by S. Gandhi, who worked as an engineer for 37 years with the Board, reveals what really ails the TNEB. The book is titled Tamizhagattil Minvettum, Minkattana Uyarvum – Karnamum Theervum (Rising power-cuts and tariffs in Tamil Nadu: Problems and solutions).

The book has been jointly published by the May 17 Organisation, the Periyar Dravidar Kazhagam, and Aazhi publishers. It is a must-read for everyone living in the state. Leading intellectuals and activists from Tamil Nadu, Nammazhavar, S. N. Nagarajan, Tho Paramasivan, and S. P. Udhayakumar have contributed special forewords to the book.

While working for the Electricity Board, the author also led the TNEB Engineers’ Union, often protested against faulty policies and even took the Board to court at times. The book draws primarily upon government records and official documents of the Board.

Gandhi’s book explains how increased privatization in post-liberalisation India has led to the ruin of state Electricity Boards. Here are some of the salient points from this book, which reveal the real reasons behind the serious power shortage facing Tamil Nadu:

1. Steps taken by state and central governments in the 1980s to increase power-generation ensured that the state EB could meet the demand for power from 1990 up to 2000. However, in the 1990s the Board was prevented from increasing its power-generation capacities, and as a consequence, increased demands post-2000 could not be met.

2. In Tamil Nadu, average increase in the demand for power had been 7% per year till 2008. That year, a spurt in use and sale of Air conditioners and television sets led to an increase of 13%.

3. Since electricity falls on the Concurrent List according to Part XI of the Indian Constitution, TN cannot overrule the central government when it comes to policy-making in this area.

4. Till the 1990s, the centre allocated large funds for development of the power-sector under successive Five Year Plans (FYP). However, since the 8th FYP, the central govt has withdrawn all funding for this sector.

5. Moreover, post-90s successive Central governments have not allowed public sector enterprises and state Electricity Boards to build new power plants, claiming that private sector enterprises should be sole players in the power sector.

6. Further, it was the centre that laid down frameworks for pricing. It determined the prices at which state Electricity Boards had to purchase power from private power generation companies.

7. Two factors determined these prices. First was the cost of generating electricity, but the government went ahead and also mandated that private companies be compensated for their initial investment.

8. So, state Electricity Boards had to pay 24% of the cost of initial investment to private companies for the first four years!

9. In fact, loans procured by the TNEB for building new power plants were exhausted just ‘compensating’ private companies for their initial capital investment.

10. Between 1996 and 1998 the Tamil Nadu state government signed agreements with six private sector electricity companies to provide power for the state. This list included the company Videocon. Eventually, though, the state government canceled its agreement with it as the company did not even begin work. However, Videocon then decided to sue the TN govt claiming heavy losses and demanding compensation worth INR 150 Crores (and counsel for Videocon was none other than Mr. P. Chidambaram!).

11. Lignite – the raw material for producing electricity in thermal power plants – costs INR 900 per ton to mine, and an additional INR 1,600 per ton to transport. Knowing this, the central govt still handed over a new power plant constructed close to the Neyveli Lignite Corporation mines to a private company instead of letting the TNEB use it to generate power! This policy measure alone resulted in a loss of INR 600 crores to the Board.

12. The TNEB was granted permission to produce only 396 MW of electricity from Natural Gas mined in eastern districts of the state. However, private companies have subsequently been granted permission to generate 430 MW of power.

13. Thanks to these pro-privatisation policies introduced by the central government, five private companies alone have pocketed upwards of INR 1,006 crores of the state EB’s funds. Yet, plants operated by these five companies have managed to generate only a total of 988 MW of power in ten years. Had the TNEB been allowed to invest this amount in power generation at the plants maintained by the Board, it would have produced 750 MW every year, resulting in a total of 7500 MW in ten years – 6.6 times what private companies produced!

14. Moreover, the amounts the TNEB was forced to pay to the private companies were also ridiculously high. There was significant difference in rates paid to various companies, ranging from Rs. 3.52 per unit to Rs. 17.78 per unit for five of the companies, while the remaining two were paid Rs. 2.31 per unit and Rs. 2.5 per unit respectively. (Six companies entered into agreement with the government between 1996 and 1998. The seventh company came in later years. Figures relating to different price rates for different companies is for the period 2005-06 and 2007-08.)

15. From Mar 2011 to May 2011, the TNEB purchased 1 Cr. units from private companies per day, at the rate of INR 12-14 per unit. Truth is, INR 4.50 per unit was enough to bankrupt the TNEB. So, all losses incurred by the Board can be traced right back to the centre’s policy of purchasing power from private companies at very high costs.

The book also discusses solutions to Tamil Nadu’s power woes.

This is a translation of Gnani Sankaran’s article on his website www.gnani.net . Gnani is journalist, activist, writer and theatre person from Tamil Nadu.
Translated by –
Reva Yunus: Member, Alliance for Secular and Democratic South Asia (Boston); studied Education at Tata Institute of Social Sciences, Mumbai.
Sridhar S: Scientist, currently post-doctoral fellow at Brandeis University.

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