Power Reu 2 1

Can Narendra Modi Deliver Affordable Electricity to Uttar Pradesh?

Power Reu 2 1

In the North Indian state of Uttar Pradesh (UP), only 36.7% of households have an electricity connection, according to the 2011 Census of India. Electricity was unsurprisingly a crucial issue for voters in state elections held between February and March 2017. In the run-up to these elections, Prime Minister Narendra Modi repeatedly claimed his party, the BJP, would bring reliable ‘24X7’ electricity to everyone in UP, if elected. With a landslide victory secured, eyes will now turn to whether Modi and the BJP can deliver on this promise to the more than 200 million people who live in the state.

Providing reliable and affordable electricity in UP, one of India’s poorest states, will be a huge challenge. The new BJP government will have to make difficult decisions to revive UP’s ailing electricity sector.

Crippling the electricity sector in UP is the poor financial health of the state’s electricity distribution companies (discoms). Five government discoms, that supply electricity to UP’s population, have for decades recorded annual losses of between 20-45%. Technical losses, poor billing systems, and high levels of electricity theft are to blame.

Government policies furthermore require discoms to provide electricity to agricultural and domestic consumers at prices significantly lower than the costs discoms incur to supply them. This is done for social and political reasons. Yet for decades, governments have not fully compensated discoms for the losses they incur as a result of subsidised prices, because the state’s finances are seriously stressed.

Successive governments in UP over the last two decades have been unwilling or unable to act decisively to deal with these problems. In a state where elections come every few years, political parties have deemed it too risky to raise prices for agricultural and domestic consumers in any significant way. Heavy-handed programmes to crack-down on illegal wire connections and theft can quickly lead to widespread public anger and resentment. Furthermore, governments have regularly used the electricity sector to their short-term political advantage – promising cheaper electricity prices to certain key groups, such as weavers – to win electoral support.

Major reform has not been carried out since 1999, when the BJP was last in power in the state.

The BJP does have a good record on delivering electricity in other states over recent years. In the state of Gujarat, where Prime Minister Modi formerly ruled as Chief Minister, reliable electricity reaches most households. However, UP is a large, populous, and poor state, which presents much bigger challenges.

It may be the case that the BJP decides to carry out major reform. It might seek to privatise discoms. More immediately, however, the party will have to take action on prices, theft, and subsidies, if it is serious about making 24X7 power a reality in UP.

First, the new BJP government will have to make difficult decisions on electricity prices. In 2015, UP like most states in India was signed-up to a central government programme, called the Ujwal DISCOM Assurance Yojana (UDAY), by the former Samajwadi Party (SP) government. This programme was launched by the BJP government in Delhi because government discoms throughout the country have high debts, and are financially struggling. It is designed to relieve discoms of debt, and set targets for performance improvement. Under the scheme, the government of UP agreed to take on most of the state’s discoms’ debts, giving them a fresh start. The discoms in turn committed to reducing their losses and to increasing the hours of electricity supplied in areas where losses fall. To help discoms improve their finances, it was agreed electricity prices would have to be raised for several years, by 5.47% in 2016, and by 5.75%, 6.96%, 6.80%, and 6.60% in the following years. The former SP government did not stick to this plan in 2016, not allowing prices to be raised as planned in the run-up to state elections. An early test will be whether the new BJP government is willing to raise prices in order to allow discoms to bring in increased revenue to cover their costs.

Second, the new BJP government will have to take action to cut down on high levels of electricity theft. The last SP government implemented technical schemes to update transmission infrastructure, improve billing software systems, and to ensure all customers have electricity meters. These are ongoing. However, the BJP government will also need to stop the collusion of discom employees with customers who are stealing electricity or not paying their bills, and end the practice of local politicians in UP interfering when discoms do seek to crack-down on theft.  If the BJP does take comprehensive steps on theft, then they will run the risk of losing popularity. Yet if they do not, it will be difficult for discoms to improve their financial position.

Third, the BJP will have to decide whether it is willing to fully fund subsidised electricity prices for agricultural and domestic consumers, if they are serious about improving the finances of discoms. Currently revenue from these consumers is much lower than the cost of supplying them. There are good reasons to subsidise. Most domestic consumers are extremely poor, and cannot afford commercial prices. According to the relevant regulations, discoms should be compensated for the cost of any subsidised prices. However, for many years governments have not fully funded subsidised electricity prices, allowing the state’s discoms to build up large debts as a result.

There is an unprecedented window for change in UP. Not since the 1980s has a political party held solid majorities at the same time at a national level in India and in UP. While the BJP can rightly claim to have transformed the electricity situation elsewhere, most notably in Gujarat, they now face a much bigger challenge in UP.