The cusp of change

We could be sitting on the cusp of what could be India´s biggest reform measure as far as the power sector is concerned. POWER TODAY is in possession of a copy of a recommendation report from one of India´s leading analyst firms for completely transforming the subsidy regime as it exists in the current form.

When reports last came in, almost 10 crore LPG customers have registered for the PM´s PAHAL Yojana, the ambitious scheme which transfers cash subsidy directly to customers´ bank accounts. The Direct Benefit Transfer Scheme for LPG subsidy covers more than 65 per cent of the 15.3 crore LPG consumers in the country. It has weeded out rampant black marketing in the sale of LPG cylinders.

Now the government seems to be considering a revolutionary move to extend this direct cash transfer mechanism to electricity subsidies. The report in our exclusive possession states that the current subsidy mechanism has a number of lacunae that have to be ironed out. For example, the existing mechanism often encourages utilities not to improve billing accuracy. Further, utilities often have low incentive to improve collections from highly subsidised customers. From the viewpoint of state governments, the existing subsidy mechanism often provides no incentive to utilities to improve their performance. Furthermore, highly-subsidised customers also have absolutely no incentive to rationalise their electricity consumption pattern.

The proposed direct transfer scheme will therefore serve three objectives: it´ll usher in some much-needed transparency into the system; many existing challenges can be overcome and the government can extend the critical net of financial inclusion to those parts of the country which currently see their fuel subsidies evaporate in the current transfer mechanism.

Since this is a strictly confidential report still being considered by the government, it would not be prudent on my part to reveal further details at this stage.

As we are discussing electricity reforms here, I would like to draw your attention to our current Cover Story where we sort the wheat from the chaff as far as a couple of electrification schemes are concerned: the Rajiv Gandhi Gramin Vidyut Vikas Yojna (RGGVVY) and the Restructured Accelerated Power Development and Reforms Program (R-APDRP). We were astonished to discover that both critical schemes are now hanging in limbo due to unrealistic timelines, contracts awarded to ineligible entities and the lacklustre approach of concerned stakeholders. The danger is that both RGGVVY and R-APDRP seem to be a couple of massive white elephants in the making.

On an aside, a recent development has convinced me that we surely live in interesting times as far as renewable energy is concerned. Tiny Costa Rica has become the first country to power itself entirely on renewable energy. For the whole of 2015, the Central American country´s grid has been fed by hydroelectricity and absolutely no fossil fuels. Beijing, with its air pollution crossing all limits, too recently shut down two more coal fired power plants in line with its plan to shut down all by 2017. In a clean air action plan (2013-2017), the Chinese government plans to reduce 13 million tons of coal consumption within five years. By replacing the coal-fired power plants with gas-fired ones, the capital hopes to cut emissions of 10,000 tons of sulphur dioxide, 19,000 tons of nitric oxide and 3,000 tons of dust every year. We are on the cusp of a new revolution in energy with new discoveries, evolving economics and deteriorating environment playing a role in the final choices that are being made.