How to reform Uttar Pradesh’s troubled power sector
The state must first provide power supply to all and tell users to accept regular tariff hikes and timely bill payment.
A rare window is open for power sector reform in Uttar Pradesh. The Bharatiya Janata Party (BJP), in office in both Lucknow and New Delhi, has a sweeping mandate to transform Uttar Pradesh’s troubled electricity situation. The party has made two important commitments on this front. First, they have promised to ensure every household in the state has an electricity connection and access to twenty-four-hour reliable supply. Second, they have pledged to turn around the state’s five loss-making public distribution companies (discoms).
Progress in both areas is sorely needed. In 2017, more than 17 million rural households did not have a formal electricity connection. Supply remains unreliable in urban and rural areas, hampering economic growth. Since the 1980s, the state’s public discoms have been accruing annual losses, the result of a large gap between the cost of supplying electricity and the revenue they recover from customers coupled with under-funded subsidised tariffs for domestic and agricultural users. The former Samajwadi Party (SP)-government signed the state up to the central government’s UDAY power sector reform scheme in 2016. This allowed 75 percent of discom debts to be cleared, and various initiatives to reform their financial performance were started. But discoms are continuing to report sizeable losses.
Crucially, universal electricity access and discom performance are closely inter-twined challenges in Uttar Pradesh. Increasing access and reliability of supply will ultimately be dependent upon success in transforming the performance of discoms. In particular, reducing the large losses discoms accrue in supplying power to domestic and agricultural consumers. Put simply, it will not be possible to provide reliable electricity to millions of additional rural households, as long as discoms face high losses supplying rural and agricultural users.
Successive governments since the 1990s have in practice focussed on access, without coupling this with serious action on improving the performance of discoms. Politics explains this. Decisive programmes on household electrification and the need to increase the hours of supply are politically popular in the short-term. Tackling the state’s loss-making discoms, in contrast, requires political parties in office to allow electricity tariffs for domestic and agricultural consumers to rise regularly. They also need to take stringent action on revenue collection and theft. In a politically-competitive, multi-party state, no party has been willing to make the bargain of jointly tackling both areas, for fear of electoral repercussions.
There are challenges beyond highly subsidised tariffs, high theft levels, and poor revenue recovery for Uttar Pradesh’s discom situation.
While many states can rely upon industry consumers to pay high tariffs that cross-subsidise low tariffs for other users, UP only has a small base of industry consumers. Additionally, the cost at which discoms receive power from generators is high.
On household electrification and reliability of supply, the BJP has moved fast. Progress is already evident. By way of the central government’s Saubhagya scheme, millions of households have been provided with a regularised electricity connection and millions more will be connected in the coming two years. While the BJP’s target of full household electrification by 2019 looks difficult, the goal may be reached soon thereafter. The BJP has drawn up a ‘24X7 Power For All’ plan for Uttar Pradesh, which promises twenty-four hours electricity supply to all rural and urban domestic and industry consumers from late 2018. Currently, rural areas receive around 18 hours supply. This in itself represents a notable improvement above the supply situation of recent years. Towards reforming the financial performance of the state’s discom, the BJP is also acting on various fronts. They have built upon programmes started by the previous SP-government to extend metering, improve billing and revenue collection, and to cut down on theft. The BJP has expended significant political capital by pushing through substantial increases in electricity tariffs for domestic and agricultural users, helping to bring down the gap between cost of supply and revenue collected. However, losses at the state’s discoms remain high. With elections due in 2019, the BJP may find it politically unpalatable to take further steps to raise tariffs and cut down on losses in the coming year.
Electoral support has, for decades, been mobilised on the promise of cheap or free electricity in UP. In the 1970s and 1980s, cheap electricity was promised to farmers. In the 2000s, it was the weavers who were wooed with subsidised power. Losses are typically significantly higher in VIP districts.
A window of opportunity to change the status quo is open in Uttar Pradesh. If the BJP can deliver on reliable access for all — and link success on this front to public acceptance of regular tariff increases and timely bill payment— then the seeds of transformation in the power sector may be sown.
When the BJP last ruled in both Lucknow and New Delhi, between 1997 and 2002, they pushed through extensive structural reforms of the power sector, against significant opposition. However, shortly after doing so, they back-tracked on tariff increases, required by the state’s discoms to support a financial turn-around, fearing upcoming electoral defeat. It remains to be seen whether a story of bold ambitions from the BJP giving way to electoral pressures is repeated this time around.
(Balls is a New Generation Network (NGN) Post-Doctoral Scholar at the Australia India Institute, University of Melbourne, Australia. This research is based on work presented in full in the book Mapping Power, edited by Dubash, Kale and Bharvirkar.)