India's power crisis

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India: Power Outage The economy is crippled by electrical shortages By Ian MacKinnon NEWSWEEK INTERNATIONAL Jan. 22 issue — Prem Kumar doesn’t consider himself a thief, but he steals electricity every day—as do each of his 3,500 neighbors in a south Delhi shantytown. A spider’s web of wires, hooked to overhead power cables, thread into every shack. Kumar, a 24-year-old hotel housekeeper who lives in a one-room hovel, uses illicit electricity to power a fan, a feeble 40-watt light bulb and the iron he uses to press his work uniform. “The electricity line runs right above my house. Why should I pay for it? Anyway, it’s always going off.”

— PREM KUMAR OTHERS in the neighborhood put the stolen electricity to more entertaining use. Wailing Hindi pop music, coming from tape-playing boom boxes, pierces the evening gloom. This is not some odd, local phenomenon: pilfering electricity from the state power company is practically a hobby in Delhi. Kumar is unrepentant. “The electricity line runs right above my house,” he says. “Why should I pay for it? Anyway, it’s always going off.”

It’s no wonder Delhi—and all of India— suffers a power crisis. The country is dogged by electricity shortages, which result from a bizarre mix of brazen theft, a politicized regulatory system and lingering statism. Last year 21 percent of all the electricity generated in India was stolen, according to India’s Central Electricity Authority. Two weeks ago the capital and six surrounding Indian states—home to 230 million people—went without power for up to 16 hours after the overloaded northern grid collapsed catastrophically. In the Indian summer, when temperatures soar, electrical brownouts occur almost daily. Fans and air conditioners fall lifeless. Tempers fray and protests turn to riots. Peak-period shortages averaged 13 percent last year—meaning more than one eighth of the country’s power demand was not met. That’s just the official number. The true number is closer to 40 percent in some regions. Erratic electricity supply is not just a nuisance. The problem dramatically affects India’s manufacturing sector, which grinds to a halt when the lights go off. According to Power Line, an Indian electricity-industry journal, power shortages shave 2.5 percent from India’s gross domestic product annually.

The big fear is that India’s fabled information technology (IT) sector—the bright spot in the economy—could fail to match its potential for want of power. For IT companies in India, buying backup generators is an expensive necessity. “Power is my biggest headache,” says Prasad Yenigalla, who quit Silicon Valley in 1999 to form Hyderabad-based Vantel Technologies, a telecom software provider. “Backup [power] mechanisms are built into our business plans, but they add significantly to costs.” Vantel has spent $100,000 for its generators—no small change for a young company. PERSONAL PIGGY BANKS How did the situation get so grim? Blame the politicians. Each Indian state has a monopolistic electricity board, which generates power and sells it to businesses and consumers. The boards essentially function as personal piggy banks for pols, who use subsidies to curry favor with local voters. India’s farmers, for example, get electricity at scandalously low rates. Electricity in India costs 5.19 cents (per unit of electricity) to produce. But agricultural users pay an average of just .59 cents. It amounts to an annual government subsidy of $7 billion, nearly 3 percent of India’s GDP. Yet state boards fail to collect even those meager dues. “It is the economics of the madhouse,” says Pritpal Bami, a Delhi-based industry consultant.

Little wonder state electricity boards are bankrupt. Last year central government-run thermal and hydroelectric corporations were owed $4 billion by state boards that couldn’t pay. Losses from theft, like that in Delhi’s slums, contribute to the financial abyss. Often, factory owners bribe officials to ignore their electricity meters. Shanty dwellers—whose illegal homes are barred from power connection by law—loop weighted wires over bare power lines and run them to their shacks. Police raids are ineffective; householders reconnect the lines within hours. Typically, theft is controlled by dadas —neighborhood mafia bosses. Poor householders pay dadas a small monthly fee for illegal hookups. The dadas then pay off electricity officials and police to ensure that the neighborhood “grid” runs smoothly.

It’s more than can be said for fumbling efforts to transform India’s power sector. To head off the gathering supply crisis, the government in 1992 invited private producers to bid for licenses to build power plants. Delhi furnished financial guarantees to eight “fast track” projects to ensure they wouldn’t fall foul of state boards, which might be unwilling or unable to pay for the power supplied. But successive projects became mired in legal battles. Just four of the eight projects are running. Texas-based Enron Corp. slogged through court hearings for years over its Dabhol plant in Maharashtra state. Enron finally won, but is again embroiled in fresh controversy over its pricing. Some exasperated Western companies have fled. That is unfortunate, given India’s acute power needs. With the economy growing at nearly 7 percent yearly, central planners say the country needs an annual boost in electrical capacity of 10 percent to 12 percent. But India is adding only half that amount.

A pioneering scheme in Orissa state is the government’s latest stab at the problem. With the state electricity board hemorrhaging money, Orissa decided to break up the regulatory body into three separate “corporate” units—power generation, transmission and distribution. Each unit is destined to be privatized once the “companies” achieve some sort of market discipline. The distribution firms have already made some progress by giving meters to customers, charging economic rates and curbing theft. The measures have helped stem the flow of red ink. Reformist states—like Andhra Pradesh and Karnataka, both in southern India’s booming IT belt—are watching the experiment closely. “The Orissa process is crucial,” says Peter Davies of the British government’s Department for International Development. “In five years we’ll see India’s power sector transformed.”

Maybe. Pessimists note that California’s power sector has been in turmoil ever since it was deregulated last summer. The potential for chaos in India is much greater—especially since people aren’t accustomed to paying for power. Like Orissa, Delhi is trying a novel idea to curb theft in the capital’s 1,200 slum colonies. Unable to defeat the dadas, the state board has invited them to become business partners. The mafia men can now tender bids for power contracts, under which they pay a lump sum for legal electricity supplied to a single meter, from which each house is fed. Revenue collection is left in their hands. In return, they get a 25 percent sales commission. “They’re the ones with the muscle,” says Yogendra Singh, manager of the Delhi electricity board. “The rate consumers pay is nominal, but we have to do something to stop them from stealing.” For hotel housekeeper Prem Kumar and his neighbors in south Delhi, the days of free—if erratic—electricity may be numbered. © 2001 Newsweek, Inc.

http://www.msnbc.com/news/516103.asp?cp1=1



-- Martin Thompson (mthom1927@aol.com), January 14, 2001


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