Former Prime Minister of India - Shri Atal Bihari Vajpayee

PRIME MINISTER SHRI ATAL BIHARI VAJPAYEE'S SPEECH AT CHIEF MINISTERS' CONFERENCE ON POWER SECTOR REFORMS

Following is the text of the Prime Minister Shri Atal Bihari Vajpayee’s inaugural address at the Chief Ministers’ Conference on Power Sector Reforms, here today:

“We have gathered here today for an important Conference. It is taking place at a critical juncture in the economic history of our country. Ahead of us lies the road to a bright future. But that road is made bumpy by the many problems of the present.

One of these major problems is in the power sector. I am sure that this Conference will candidly consider all aspects of the challenges in this vital infrastructure area and evolve a sound strategy to put it on a sustainable growth path.

There is no doubt that India's performance in power since Independence has been impressive. Our path of self-reliance has vindicated itself. Our PSUs in this sector, such as BHEL, NTPC, NHPC, NPCIL, PGCIL, and others have an outstanding record of commercial success and service to the nation.

However, this remarkable performance cannot overshadow the fact that it falls well short of the country’s rapidly growing energy needs. Even today, as many as 80,000 of our villages are without electricity. Less than 40 percent of our rural households have access to electricity. The momentum of expanding rural electrification has visibly faltered during the last ten years. With your support, we would like to include rural electrification as a Basic Minimum Service in the planning process and set before ourselves the national goal of completing this task by the year 2007, the last year of the Tenth Plan.

It is a matter of abiding concern that our per capita consumption of electricity is among the lowest in the world. It is only 350 units a year. What is equally worrisome is that those industries, which have an undisputed potential for wealth and employment generation, are starved of adequate and assured power.

Indian industry and agriculture cannot compete in the international market, nor can they ward off competition by foreign products in the domestic market, without reliable supply of electricity at an affordable cost. The process of globalization will further accentuate these disadvantages, if we do not take immediate remedial steps.

In view of our rapidly growing needs, we need to add 100,000 megawatts to our generation capacity in the next ten years. In other words, we have to achieve in the next 10 years what we could achieve in all of the last 53 years. This massive programme will cost Rs. 800,000 crore including the associated costs in transmission and distribution systems. Nearly half of these resources have to come from private and foreign investments.

Friends, today we must honestly admit that our attempts to reform the power sector have not moved smoothly. Several projects promoted by the private sector have failed to take off, even though an enabling policy framework has been in place for the past eight years. Till date Independent Power Producers have added only 5,000 megawatts of capacity. And only 5,000 megawatts of capacity is under construction. Many viable projects have not been able to achieve financial closure due to the inability of the State Power Utilities to have an adequate payment security mechanism.

Why has this situation arisen? It is principally because we failed to address the problems in this sector with a comprehensive and long-term national vision. Our efforts were partial, and the parts did not connect and complement one another. Generation, transmission, distribution, and consumption of electricity are parts of an integral cycle. Reforms in the crucial initial stages failed to take this into account. We should have focussed on reforms in distribution before, or at least simultaneously with, those in generation.

Our reforms faltered on another self-evident count. Ours is a Federal structure. Reforms can yield the desired results only if there is good coordination between the Centre and the States. Electricity is on the Concurrent List and the responsibility for distribution lies with the States. Hence, it was clear from the very outset that reforms in the power sector would not succeed without the fullest participation of the State Governments.

All of us know that the main problem in the area of distribution is the poor health of almost all the State Electricity Boards. This is because we have not been implementing the sensible commercial principle that he who uses electricity pays for it. One can understand — indeed, justify — the provision of subsidized power to poor farmers, cottage industries, and to the households of vulnerable sections of our society. But today there are many other categories of users who get electricity either free or at highly subsidized rates in the name of agriculture. At any rate, the subsidies in deserving cases should be provided for explicitly through budgetary support. They cannot be sustained by irrational cross-subsidisation or at the expense of the financial viability of the SEBs.

To make matters worse, only 40 percent of the power supply in India is billed. And not all those billed are made to pay. The combined effect of all this is the stupendous losses of our SEBs, which now stand at an unsustainable level of Rs. 24,000 crore each year. These losses have also further worsened the fiscal health of many State Governments.

In addition to the unacceptably high technical losses in transmission and distribution, our SEBs are saddled with what Shri Yashwant Sinha called the “other” T&D losses — namely, Theft and Dacoity losses. I am told that the country loses as much as Rs. 20,000 crore in theft of power each year. Should we not resolve to eliminate these losses in two years? I suggest that all States implement a monitorable action plan to complete tamper-proof metering for all consumers within one year.

Friends, this is the fourth such Conference in the past five years. We have taken many sensible decisions, starting with the recommendations of the Committee of the National Development Council comprising six Chief Ministers in 1993. But I must confess that their implementation on the ground has been very feeble. We need to speed up the reform process with a sense of urgency, so that its impact can be felt on the financial health of our SEBs and in the flow of private investments in this sector.

The reform process has been a useful learning experience for all of us. In the initial phase of reforms in the power sector, we adopted an approach of guaranteed returns to the private producers. This made the tariff unacceptably high. The Dabhol Power Project in Maharashtra is a notable example. I hope that this issue will be resolved soon. It has once again highlighted the need for a holistic and long-term approach to power sector reforms.

As the Agenda Notes underscore, our priority should be to make distribution commercially viable, so that it can boost private investors’ confidence in generation and transmission projects. We should also enable some IPPs to achieve financial closure at the earliest. We should initiate measures to improve operational efficiency of State Power Utilities through structural reforms, refurbishment of old generating units, and reduction of distribution losses. There is a good suggested action point in the Agenda Papers for franchising the responsibility of bill collection in towns and rural areas to municipal councils, panchayats, and cooperatives.

Closely linked with the strategy to revive the SEBs is the question of agricultural tariff. Our farmers know that their interests will be better served if we can give them assured supply, even if they have to pay an affordable rate for it. They are all too aware of the disadvantages of free but erratic supply. I believe that our farmers will support our initiatives if we sincerely explain our overall reform strategy to them. To begin with, we should implement the Common Minimum National Action Plan, adopted by the Chief Ministers’ Conference in 1996. It had set a tariff of at least 50 paise a unit for agriculture, and urged for its further revision to 50 percent of the average cost in three years.

Similarly, we should make concerted efforts to mobilize the support of other categories of consumers and the employees of SEBs for our reform initiatives.

I would urge all States to make State Electricity Regulatory Commissions functional in the next six months and to abide by their tariff orders.

A comprehensive Electricity Bill will be introduced in this session of Parliament. Its enactment will provide a legal framework for State Government to undertake reforms in the power sector. I compliment the Government of Orissa for having taken far-reaching steps in this process. Similarly, the Governments of Haryana, Andhra Pradesh, Karnataka, Uttar Pradesh, Rajasthan, and Delhi have initiated measures to unbundle and eventually privatize or commercialize distribution.

The Centre has taken many steps to support the reforms being attempted by the State Governments. I recognize that each State has its own problems and needs to chart its own path for reforms. It is not our intention to present a single blueprint for all the States. The Ministry of Power is, therefore, entering into State-specific Memoranda of Understanding to support them to undertake specific time-bound programme of reforms.

I am glad that the Ministry of Power is giving a new thrust to hydropower development. We have a large untapped hydropower potential of over 1,50,000 MW, which we must develop fully in the next few decades. The development of some good projects is being unnecessarily delayed due to inter-State differences. I am sure that, with mutual goodwill and cooperation, we can soon resolve these differences for the benefit of all.

I would like this Conference also to deliberate on how to accelerate harnessing of renewable sources of energy. Our goal is to increase the share of renewables to 10 percent of the additional planned capacity in the next ten years — that is, 10,000 MW. We need to promote wind power farms and bagasse-based cogeneration units in sugar mills through an intensive programme. Apart from adding to our generation capacity, cogeneration units will also benefit sugarcane growers and the sugar industry, which is currently going through a rough patch.

Conservation of energy has today become almost as important as its generation. There is a vast potential for reducing energy consumption without affecting the productivity in various sectors of the economy. We need to build a strong nation-wide campaign to promote energy efficiency. The enactment of the Energy Conservation Bill, 2000, which is now before Parliament, will enable Governments to designate energy-intensive consumers for the purpose of compulsory energy audit.

I would like to draw your attention to the important issue of maintaining grid discipline. As you are all aware, there was a major grid collapse in the Northern Region on January 2nd, resulting in a serious loss to the economy. Lack of grid discipline was the main cause for the grid collapse. I would like the Ministry of Power to improve its mechanism for grid management so that any such failure can be set right in a reasonable time.

Dear Chief Ministers, this gathering represents a broad spectrum of India's political diversity. You belong to different political parties. My own Government at the Centre is also a coalition of many parties, including several regional parties. All of us have pledged to work for rapid eradication of poverty and unemployment, so that all our citizens can enjoy decent living standards. This is our common commitment to the people who have given us their mandate.

Nevertheless, all of us are facing a common hurdle in fulfilling this commitment to the people. Although power is what powers a nation’s economic progress, almost all parts of the country are facing power shortages — and the scarcity is acute in many places. Without adequate, affordable, and reliable power, neither agriculture nor industry and services can grow to their full potential. And without accelerated economic growth, we cannot make a faster and more visible dent in poverty and unemployment.

Therefore, we should begin our discussions today by accepting one stark truth. If we want to improve the power situation in the country, there is simply no alternative to a shared commitment of both the Centre and State Governments to power sector reforms. In this context, I am aware of the problems you face from the opposition parties in your respective States. Often, a party in the opposition in one State attacks the very reforms that its government is trying to implement in another State. I urge all political parties to set aside their differences and arrive at a consensus on this issue, since it will benefit both the nation and each of our States. A common approach adopted by this Conference will send a powerful message to all political parties to support power sector reforms in all the States.

With these initial remarks, I declare the Conference open and hope that we will all agree on a roadmap to rapid reforms in the power sector.

Thank you.”