Privatisation of profits, socialisation of losses

By R.N.Bhaskar

May 18, 2007 (published in the DNA). pdf version available here (2007_05_DNA_Maharashtra's electrifying annual losses of Rs.5000 crore_130kb.pdf)

There is another type of theft that often goes unnoticed. It is electricity supplied to industrial units, but classified by conniving officials as commercial, household or even agricultural power consumption. This adds another Rs.2,000 crore to the figure for theft.

More than 20% of the state's power goes to agriculture, even though this sector contributes a mere 13% to the state's GDP. Evidently, more (and cheaper) power has been consumed by agriculture than can be economically justified. One reason could be that the cheap pricing of agricultural power allows it to get wasted. But the bigger reason is that a lot of electricity consumption that is shown as being used by agriculture is actually used by commerce and industry.

Even though industry and commercial units consume only 45% of the total power in the state, they contribute to over 87% of the state's GDP.

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When corruption takes place, it leads to what a senior economist describes as "socialization of losses and privatization of profits". That is what the power sector in Maharashtra too has witnessed.

It has turned a blind eye to the malaise of a steady increase in the number of freeloaders who consume power but don't pay for it. Much of the theft gets written off as transmission and distribution (T&D) losses which eat away at least Rs.3,000 crore of profits every year for the state electricity board and its distribution company. This T&D loss is usually plain theft of power. In Maharashtra, the T&D loss is well over 30%.

Yet, there is another type of theft that often goes unnoticed. It is electricity supplied to industrial units, but classified by conniving officials as commercial, household or even agricultural power consumption. After all, with agricultural power being priced very low, the temptation to 'steal' agricultural or household power by commercial and industrial units is tremendous. Commercial and industrial power is often priced at twice the residential tariff; agricultural power tariffs are a fraction of residential costs. This 'mis-declaration' could add another Rs.2,000 crore to the figure for theft.

Evidence of the skewed numbers can be can be gleaned by comparing two tables for 2002-2003 (the latest provided by the Maharashtra State Electricity Distribution Company Ltd (MSEDCL) (http://www.mahadiscom.in).

Table 1 shows how more than 20% of the state's power goes to agriculture. But look at table 2 which shows that the GDP share of agriculture in Maharashtra has fallen to 13%. Evidently, more (and cheaper) power has been consumed by agriculture than can be economically justified.

One reason could be that the cheap pricing of agricultural power allows it to get wasted. But the bigger reason is that a lot of electricity consumption that is shown as being used by agriculture is actually used by commerce and industry.

How else can the state justify the existence of electric arc furnaces in the state for the making of steel that is power-intensive and economically unviable at industrial power tariffs?

Further pointers to this mis-declaration can be found in detailed studies by economic research companies like the CMIE which showed how, even ten years agoa, Maharashtra using up more pumpset electricity per acre of land than even the leading agricultural states. Obviously, someone cleverly thought of inflating the number of pumpsets working in the state to conceal the theft of power!

And sadly, when the state decides to introduce power-cuts through loadshedding, it savagely affects those very units that contribute to the state's GDP growth, and also pay the highest tariffs for electricity. After all, even though industry and commercial units consume only 45% of the total power in the state, they contribute to over 87% of the state's GDP.

In spite of this reality, MSEDCL plans reducing its T&D losses only by 2% each year. Clearly, the incentive for privatizing profits from a state enterprise are far too tempting than the urgently needed overhaul of power distribution policies.