Privatisation of Electricity Generation – False Claims and Real Aims

This is the Fourth in a series of articles on the class struggle over electricity in India

With the launch of the Independent Power Producer (IPP) policy in 1992, the generation of electricity was thrown open to Indian and foreign capitalists. Prior to 1992, the generation of electricity was an activity reserved for the public sector.

It was claimed by the Government of India that the entry of the private sector would ensure that there would be no shortage of power. It was further claimed that power supply would become more reliable and available at a lower price.

After 30 years, neither has shortage been eliminated nor has electricity become cheaper.  In the last 12 months, the country faced two power shortage crises, in October 2021 and in April-May 2022. Even now, farmers get power only at night for running their irrigation pumps.

Electricity was bought and sold at as high a rate as Rs 20 per unit during the October 2021 crisis!

Even after 25 years, nearly 20 crore people did not have access to power in 2017, according to a World Bank Report. India ranked 80th out of 137 countries in the reliability of electricity, according the 2018 Global Competitiveness Report.

Indian monopoly capitalist groups have been the biggest beneficiaries of the IIP policy. Private companies owned and controlled by the Tata, Adani, Anil Ambani, Jindal, Goenka, Torrent and some other groups own nearly half of the power generation capacity of the country today.

These monopoly groups are now eyeing efficient state-owned generating plants. However, the program to privatise public generation plants is facing strong opposition from the power sector workers.

When the Maharashtra government wanted to hand over the operation of hydel power plants to private companies, power employees and engineers unitedly opposed it. As hydel power plants are the cheapest source of power, their privatisation would have hurt both the state-owned distribution company (Discom) and the people of Maharashtra. A similar struggle was waged by the Andhra Pradesh power workers when the state government proposed handing over the running of Sri Damodaram Sanjeevaiah Thermal Power Station on a long-term basis to a private company.

Once the power generation was delicensed, capitalists rushed to set up power projects, and as they were assured of profitable sale by long-term Power Purchase Agreements (PPAs). Within two years of the announcement of this policy in 1992, as many as 138 MOUs were signed for power projects by capitalists. The capacity of these projects exceeded the entire installed power capacity of the country!

PPAs were entered into for long durations of up to 25 years for the purchase of a fixed quantity of power. This required the state electricity boards to estimate the power demand over the next 25 years. The demand was often over-estimated to justify the PPAs. In several states, contracted capacity is 30% in excess of the peak demand. Maharashtra, for example, had PPAs for 37,896 MW of supply, when its peak demand was only 22,516 MW. Similarly, in Tamil Nadu the peak demand was only 14,223 MW but the Electricity Board had signed PPAs for 26,975 MW.

By 2017-18, the country had around 334,000 MW of installed capacity, of which 291,000 was under long-term PPAs. The peak demand in that year was only 164,000 MW.

The central government advised the Electricity Regulatory Commissions to fix a ‘remunerative’ power tariff on a “cost plus profit” basis. The guaranteed rate of profit for tariff fixation is presently 15.5% for thermal power and 16% for wind and solar energy based plants. This is the post-tax return on equity. The guaranteed rate of profit for private power generators is much higher than the average rate of profit for Indian industries.  The government claims that it is necessary to offer such a rate in order to attract private investments in power generation.

PPAs generally have a provision that even if no power is drawn, a minimum charge has to be paid to the generator. So, a private generator earns without selling any power while state electricity boards pay them without consuming any power.  This is required by the PPAs.

A typical example is of Madhya Pradesh whose distribution companies paid Rs 12, 834 crores as ‘idle capacity charges’ without availing of any power supply from the private generating companies in the period 2016-17 to 2020-21.

Thus, the PPAs have ensured that private companies of the monopoly capitalists kept making profits, while state-owned companies bled.

The government went out of its way to help Indian and foreign monopoly capitalists. In the first few projects, the central government even agreed to pay to the private power company if there was a payment default by the SEB.

The first big private power project in the 1990s was by an American monopoly called Enron.  The Enron project in Maharashtra fully exposed the anti-people and anti-social character of the privatisation program.

The Enron project was opposed by power workers and by various organisations of the people from the day it was proposed. As the project was based on imported petroleum fuel, the cost of power generated was going to be many times more than the power rate prevailing at that time. The capacity proposed was much more than the requirement of the state. The project would have made the Maharashtra State Electricity Board bankrupt. People had serious concerns related to environmental damage and the jump in their power bills.

When the Plant started in 1999, MSEB was forced to buy 2000 MW power even though it did not need it, at as a high a price as Rs 7.80 for a unit. The consumers would have paid Rs 11 per unit for power. Both power workers and people intensified their opposition and forced the state government to cancel the PPA with Enron. MSEB is reported to have lost Rs 3,360 crore in the process.

The Andhra Pradesh government estimated in 2019 that it was incurring additional expenditure of Rs 2,200 crore annually due the PPAs signed during the previous five years. However, the Union government said that it could not review the PPAs and renegotiate them. “Power purchase agreements are contracts binding on all signatories. If the contracts are not honoured, the investments will stop coming. For the above reasons, it will be wrong and against the law to cancel all the PPAs”, the Power Minister wrote to the Chief Minister.

On the other hand, monopoly capitalists have been allowed to violate the PPAs. When imported coal-based plants of Tata and Adani on Gujarat coast asked for revision in power price due to rise in coal price, it was permitted ignoring the terms of the contract. More recently, when coal prices shot up due to the war in Ukraine, these plants refused to honour their PPAs and closed their plants saying the power price given to them was not enough to cover the cost of production.

It is obvious that the real aim of PPAs has been to make power generation a low risk business with guaranteed profits for monopoly capitalists. PPAs have led to deterioration of finances of state-owned generation and distribution companies, thereby preparing the ground for their privatisation. Profits of capitalists have been ensured at the cost workers and other toiling people, who are paying more and more for electric power.

Read the Third part: Historical Evolution of Electricity Supply in independent India, 1947 to 1992

Read the Fifth part: Privatisation of Electricity Distribution – False Claims and Real Aim

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