Power pangs of Punjab
Policy stance lacks long-term vision
by S.S. Johl

Uninterrupted quality supply of power is one of the crucial determinants of growth and development of any economy. The other factors are efficient transport and communication facilities, adequate and timely availability of reasonably priced credit, availability of workforce and the managerial staff equipped with relevant education and skills as well as easy access to affordable medical services.

If the quality availability of power at affordable prices is ensured and efficient transport-communication infrastructure is developed in any area, region, state or country as a whole, this will have complimentary effect and will provide a primal push for the development of other determinants of growth such as production credit as well as access to education and health services. Within these two crucial pre-requisites — power and transport-communication — the former provides the ignition to the development process and all components of the investment game start falling in place. For example, in Himachal Pradesh, no doubt, tax concessions along with promotional policies of the government did play a role in attracting industry, yet more important for industrial investors was the adequate and low-priced quality supply of electric power that played a crucial role in expanding the industrial base in the state.

In the absence of adequate quality power, no other consideration or concession would have made the difference that we are seeing today. This is not to deny the role of the Central package, a better promotional climate, lesser corruption, a comparatively more responsive bureaucracy, etc, that otherwise compensate considerably for the handicap of accessibility in the hilly terrain. The availability of reasonably priced quality supply of power has served as irresistible attraction for the investors in the state both in the industrial and services sectors.

This is the reason why in the Eleventh Five Year Plan, emphasis was placed on the creation of an additional public sector power generation capacity in the states. Whereas all the states in the country created substantial power generation capacities, unfortunately Punjab lagged dismally on this aspect. For instance, Haryana increased its power output by 1770 MW in 11th Plan, and 1860 MW capacity projects are under construction in the public sector. The adjoining state of Rajasthan effected an increase of 1270 MW, and another 1320 MW capacity will be added when the projects under construction are complete. The situation is not different in other states of the country. In contrast, Punjab added only 500 MW from Lehra Mohabat during the plan period and that too from the project initiated by the previous government.

No other plant is under construction in the public sector at this stage. In principle, the major part of power production should be in the public sector, because it is the basic necessity of all the sectors and sub-sectors of the economy, and this crucial input cannot be left to the vagaries of the private sector alone. In fact, the private sector should play only a supplementary role in this sector. Heavy dependence on the private sector can lead to a deliberately created mismatch between the supply and demand for power, and prices can be escalated in a coercive manner during critical periods. Otherwise even the private sector supply of power cannot be cheaper than public sector production if management is made equally efficient and the plants operate at their optimum capacity, as there is no element of private profit involved.

Further, the Punjab government has allocated power production projects to the private sector through the signing of direct MoUs, bypassing the mandatory requirement of the open global tender system. Such allotments through MoUs have all the leeways and potential for resorting to corrupt practices, whereby undeserving concessions can be granted and higher prices can be negotiated to the advantage of private operators. For instance, the Gidderbaha plant was demanded by the PSPCL to be constructed in the public sector for which the Power Finance Corporation was prepared to finance 90 per cent of the capital cost of the project. Yet the project was sanctioned to the National Thermal Power Corporation through a direct MoU. The project is in limbo, because the NTPC is dragging its feet on one excuse or the other.

In fact, the Punjab government, bypassing the requirement of competitive global tenders, has adopted the direct MoU mode as its policy on the production of electric power in the state and has made provision for abolishing the stamp duty on land transfer deeds with exemption from taxes and charges for the change of land use. So much so that the charges for electricity use during the construction phase of the project is reduced by half. It could be understandable if such concessions were provided under the open bid system and announced before inviting tenders/bids and the contracts negotiated for a lowest price of power supply. Yet, as it is, it does not look pleasant under the system of direct MoUs and with undue concessions provided by the government.

It is unfortunate that the successive governments, right from the early nineties, have not given due priority to power production in the state. Yet the demand for power has been escalating constantly. During the last five years, in spite of scheduled and unscheduled cuts and inadequate allocations to the agriculture sector, the consumption of electricity in Punjab jumped from 33651 million units in 2005-06 to 40648 million units in 2010-11 (more than 21 per cent increase). As a consequence, to meet the demand, the state resorted to the purchase of power from outside with its purchase cost increasing from Rs 2405 crore in 2005-06 to Rs. 5300 crore in 2010-11.

Imagine for a moment if this amount was spent on the production of power in the public sector, how easy the state would have been on the power front! No doubt, a portion of this cost has been realised as user charges, yet the state suffered a net loss on every unit purchased. Further, dependence on outside sources leads to uncertainties on supply and prices. The state had to hire the services of middle men in the short term for the additional supply of power from outside resources. As a consequence, prices of such supplies increased from Rs 3.24 in 2005-06 to Rs. 7.12 in 2008-09. Even in 2010-11 the unit cost was Rs 6.29. The claims of creating surplus power within three years from taking over the reigns of the government by the ruling political combine has fallen flat and with private sector plants being in limbo, there is no hope for the state to become power surplus in the near future.

The plausible answer lies in revamping and increasing the production capacity of the existing plants, which is a less costly proposition per unit of power generation and to put some major projects in the realm of the public sector. The Power Finance Corporation can be approached for finances. The Punjab State Power Corporation has the needed capacity to build new projects alongside revamping and increasing the capacity of the existing plants. More than 40 per cent dependence of the state for power on external resources is not a tenable situation. Yet the basic question is if the Punjab government will apply its mind to the problem dispassionately and ever adopt such a rational approach in the interest of the state.

The writer, a former Vice-Chancellor of Punjabi University, Patiala, is a well-known agricultural economist.