Sixty-five years after independence and after six decades of planned development, inadequate access to power remains a critical development challenge in Uttar Pradesh. Its per capita energy consumption is among the lowest in all states. In 2009-10, the state’s annual per capita consumption of electricity was just 348 kwh, compared to the all-India average of 779 kwh. Only 28% of the rural population uses electricity as their primary source of lighting, compared to 60% in the rest of India. At least since the turn of the century there have been attempts to improve the situation. In recent years there have been some successes on the generation front. However, the macro picture remains far from comforting.

Reforms were initiated in 1999. The UP State Electricity Board (UPSEB) was unbundled into three companies and the Kanpur Electricity Supply Authority (KESA) was transferred to a corporate entity in 2003. A law against the theft of electricity was adopted in 2002 and four distribution companies (‘discoms’) set up in 2003 to take care of electricity distribution in the whole state. In 2003-04 UPSEB loans of Rs. 12,277 crore were written off by the state government and the share capital of Rs. 5,906 crore was provided for generation companies. A private player was given responsibility for distribution in Greater Noida area and a franchisee in Agra. Also, the government transferred regulatory powers to the newly established UP Electricity Regulatory Commission (UPERC).

For the past decade, unbundling and corporatisation have not achieved their goals and UP has struggled to meet its development objectives. Utility governance reforms are incomplete. The utilities lack autonomy from the government in the management of their day-to-day operations. UP Power Corporation Ltd (UPPCL) retains its function as the sole buyer of retail and bulk power in the state.

On the generation front the turnaround began when several large power projects were assigned to private entrepreneurs and power purchase agreements (PPAs) signed with them in 2006 and thereafter. The thrust on the sector and the consequent turnaround can be understood from the fact that by March 31, 2012 UP added around 2,800 MW to its capacity, an increase of more than 50% over the existing capacity during the 11th plan period. It needs to be appreciated that such additions are something new to UP. For almost two decades before 2005-06 there were no such new additions in the state. The power transformation efforts have spanned over more than a decade and all possible combinations of Samajwadi Party (SP), Bahujan Samaj Party (BSP) and Bharatiya Janata Party (BJP) have ruled the state during this period. Thus despite changes in the ruling regime the desire to make a difference in the power sector remains and the generation sector has benefited from that.

However, the technical performance of both thermal and hydel assets is lagging.  During 2009-10, the average national plant load factor (PLF) of all thermal power plants was 77.5%, while in UP the average PLF was 64.2%. UP lost a majority of its hydel assets to Uttarakhand in 2000, and most of the remaining hydel assets are over 40 years old and require renovation and modernisation. 

The weak finances of utilities are another area of concern. The discoms’ current liabilities amounted to around Rs. 53,000 crore.  Subsidies have grown to around '2,000 crore in 2009. To ensure higher revenue collection, collection in rural areas has been outsourced to 451 private franchises. Collection efficiency improved from 60% before the start of reforms to 83% at present, but it is still very low. High aggregate technical and commercial (AT&C) losses are the key determinant of a large revenue gap. These losses stood at 34% during 2009, and there are no signs of meaningful improvement here.

Growing electricity demand continues to exert pressure on utilities.  In 2009-10, peak shortages were over 21%, far above the all-India average of 8.5%. Insufficient supply from public utilities in UP has forced UPPCL to become increasingly reliant on short-term power purchased at higher rates in the spot markets. In 2009, over 80% of costs were accounted for by such purchases. Power generation in UP, for all practical purposes, has been a thermal story. The state requires large coal supplies and its non-availability is a critical impediment in meeting its power needs. During the 12th and 13th plan periods, UP’s energy requirement is forecast to grow by 8% annually. Dependence on coal and its non-availability will continue to play the spoil sport.

The ongoing crisis in the distribution sector is having a cascading effect. Financial institutions are now unwilling to extend working capital loans to utilities.  As a result, discoms have been resorting to load shedding despite power being available since they cannot pay for the power they need to supply. This is also impacting the overall financial health of generators leading to limited incentives to continue investment in generation, even as the state and the country faces huge supply deficits. 

During last two decades the state has seen impressive policies but little movement on the ground. Most importantly the failure to view (or willingness to view) public sector power entities as business entities, which need to submit to the rules of business, has ensured continued economic compromise of the entities. Low availability, low consumption, low PLF, high T&D losses and completely compromised finances are only an expression of this script gone wrong.
Power is a critical motive force which drives all economic and social development, and making it available is a state responsibility. Given the importance of this force and given the nature of challenges involved, reforms in this sector should be on top of the agenda for the government. A white paper on the state’s power sector and a transparent roadmap for fulfilling this need could be the starting point for a turnaround story. Coal linkages and the mix of alternative sources of energy that can help bridge the energy gap need be delineated. Unveiling of the blueprint for private sector participation and for the governance reforms in state utilities (including reduction in AT&C losses) will have to be the corner stone of this effort. The task is well cut out; the government has to walk the distance. People are watching with expectation.


(This article first appeared in the february 16-28 issue of the print magazine)