Delhi polls: Four ways Modi will actually end up making electricity more expensive

Aditya Menon
Aditya MenonFeb 04, 2015 | 11:12

Delhi polls: Four ways Modi will actually end up making electricity more expensive

Cheaper electricity is one of the main promises the BJP has made in its Vision Document for Delhi. The BJP's formula for ensuring lower power tariffs is competition between power companies. Even in his election speeches in the capital, Prime Minister Narendra Modi has said that like mobile service operators, if consumers are given the freedom to choose their power distribution company, electricity would become less expensive. The logic is tempting, but over simplistic. This isn't how the power sector works. Moreover, there are no examples to prove that a competition between power companies has made electricity cheaper. What we do have an example of, is of Modi's policies on the power sector in Gujarat. He has claimed that power sector reforms in Gujarat are a glowing success story. It is a success story, no doubt, but mainly from the perspective of the power distribution companies. Did Modi make electricity cheaper in Gujarat? No, in fact he made it much more expensive. Here's how:


Scrapped 25 per cent relief for consumers

One of the first things Modi did after he won his first major electoral victory in the 2003 Assembly elections in Gujarat was to scrap the 25 per cent relief offered to domestic consumers on their monthly electricity bill. With this decision, he did away with a government scheme that was providing relief to Gujarat's consumers since 1995.

While burning a huge hole in the consumers' pockets, the Modi government's decision immensely benefited power distribution companies in Gujarat. The biggest beneficiary was the Torrent group. Torrent's Ahmedabad Electricity Company supplied power to Ahmedabad city and its Surat Electricity Company (SEC) handled the power supply for Surat.

According to this report in the Economic Times, with the state government's announcement, the Torrent group companies no longer needed to go to the state government to recover the subsidy component. Instead, they recovered the entire payment straight from consumers.

It is hardly surprising that barely a month later, Torrent Group chairman Sudhir Mehta, along with a group of other Gujarat-based industrialists like Gautam Adani, took on the Confederation of Indian Industries for its criticism of Modi's handling of the 2002 riots. Mehta and Adani have now become an integral part of Modi's international delegations. Read this article to know how Modi has placed them on the high table.


Allowed discoms to double FPPPA charges

As part of their power tariff, consumers have to pay Fuel Price and Power Purchase Agreement (FPPPA) charges. Power distribution companies levy these charges depending on the variation in fuel costs and freight rates. In 2012, power discoms in Gujarat doubled FPPPA charges in a space of six months. The increased fuel charges led to an additional burden of few thousand crores on the citizens.

According to this report in DNA, for Torrent Power Limited, which distributes power in Ahmedabad, Gandhinagar and Surat, the FPPPA charge went up from 69 paise per unit in September 2011 to 145 paise per unit in February 2012, an increase of 76 paise or 110 per cent in six months.

According to the report, "The staggering rise in FPPPA charges and the resultant higher electricity duty has translated into an increase of almost 90 paise per unit in the cost of power in six months". The report estimates that the Gujarat's consumers were slapped with an additional burden of  Rs 4,500 crore to Rs 5,000 crore.

Kept the regulator toothless

The power companies could charge higher tariffs from consumers because the Gujarat Electricity Regulatory Commission (GERC) did nothing to prevent it.


A look at the annual reports for Torrent power since 2011 shows that the GERC has allowed the company two steadily increase power tariffs in Ahmedabad and Surat. Four orders by GERC in the following dates reveal this:

September 6, 2011: 4.68 per cent increase in Ahmedabad, 2.63 per cent in Surat

June 2, 2012: 2 per cent increase in both Ahmedabad and Surat

April 16, 2013: 6 per cent increase in both Ahmedabad and Surat

April 29, 2014: 7.5 per cent increase in both Ahmedabad and Surat

Now, why should Modi be blamed for the GERC's decisions? Firstly, GERC is a quasi-judicial body whose member are appointed by the government. More importantly, from 2008 to 2013, GERC was headed by an officer hand-picked by Modi: PK Mishra, who is now additional principal secretary to the prime minister. Mishra is one of Modi's most trusted officers. He was his principal secretary during his early years as chief minister, including during the 2002 Gujarat riots. He was principal secretary even when the Gujarat government took the above mentioned decision of scrapping the 25 per cent relief to consumers. Therefore, it wouldn't be wrong to assume that Mishra's decisions in the GERC had Modi's complete approval.

But there is more to how the Modi government has kept the GERC weak. According to this report in Business Standard, the Gujarat government has violated regulations in the appointment of a member of the GERC. The report states that the commission does not have any legal representation since 2006 and it now has two finance members against the mandatory one. A selection committee, set up by the state government, appointed KM Shringarpure  as member (finance) in the GERC even when it already had a member (finance) - MK Aiyer. Interestingly, before joining the GERC, Shringarpure was general manager (finance and accounts) with the government run Gujarat Urja Vikas Vikas Nigam Limited (GUVNL). And Aiyer had earlier worked as chief general manager (finance and accounts) in Gujarat Energy Transmission Corporation (GETC). Isn't it problematic that GERC, which is expected to hold power companies like GUVNL or GETC accountable, includes members who have served these very power companies in critical positions?

In the power distribution model that Modi is proposing in Delhi, the consumer's right to choose his power discom can ensure lower tariffs only if discoms don't jointly decide to keep tariffs high, almost like a cartel. To prevent this from happening is the job of the regulator. But if a the GERC headed by Modi's hand-picked man can't get companies to keep tariffs low, how are we expected to believe that a BJP government in Delhi is going to provide cheap electricity?

Awarded solar projects to ineligible bidders

One must concede that Modi did a great job of promoting renewable sources of energy in Gujarat, from solar power in particular.

But even Gujarat's solar policy came in for some sharp criticism by the Comptroller and Auditor General of India (CAG). Last year, the CAG slammed the state for awarding solar projects to “ineligible bidders”, and for creating excess burden of Rs 473 crore on power consumers in the state.

“Gujarat Urja Vikas Nigam Ltd/government of Gujarat had approved development of solar projects far in excess resulting in purchase of 1,139 million units of solar power in 2012-13 (bought at cost of Rs 14 per unit), against the stipulated 686 million units. This excess purchase of 453 million units led to excess burden of Rs 473 crore and consequently passing of the burden to consumers through increased average cost of power of the GUVNL,”  the CAG observed.

In BJP's Vision Document for Delhi, it promises to make the city a "Solar Energy Capital". One wonders, what cost Delhi's consumers would have to bear for this to happen.

So here's what we know: Under Modi, power tariffs steadily increased in Gujarat, power companies raked in profits and the regulator who is supposed to intervene on behalf of consumers, was rendered ineffective. Do you still think he will reduce power tariffs in Delhi? Switch on the LED light and see it for yourself.

Last updated: February 04, 2015 | 11:12
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