We have argued in this chapter that either a switch to metered tariff regime at this juncture or raising flat tariff fourfold as proposed in Gujarat will very likely backfire in most of the states of India. Metering is highly unlikely to improve the fortunes of the power utilities that have found no smarter ways - than in the 1970s - of dealing with the exceedingly high transaction costs of metered farm power supply, which led them to flat tariff regime in the first place. However, if agriculturally dynamic states like Punjab and Haryana - where non-farm uses of three-phase power supply are extensive and growing in the villages and where productive farmers can afford higher costs of better-quality power supply in their stride - want to experiment with metered power supply, they would be well advised to create micro-entrepreneurs to retail power, meter individual power consumption and collect revenue rather than experiment with wooly ideas of electricity co-operatives that continue to be promoted (Gulati and Narayanan, 2003, p. 129). Despite 50 years of effort to make these work, including with donor support, they have not succeeded in India.22 The 50-year-old Pravara electricity co-operative in Maharashtra survives but only by owing the SEB several billions of rupees in unpaid past dues (Godbole, 2002). While promoting metering it should also be borne in mind that the component of the transaction costs of metering, which is by far the largest and the most difficult to manage, arises from containing user efforts to frustrate metered tariff regime, by pilfering power, illegal connections, tampering with meters and so on. These costs soar in a 'soft state' in which an average user expects to get away easily even if caught indulging in these.23 One reason why metering works reasonably well in China is because it is a 'hard state': an average user fears the village electrician whose informal power and authority border on the absolute in his or her domain.24 The ongoing experiments on privatization of electricity retailing in Orissa will soon produce useful lessons on whether metering-cum-billing agents can drastically and sustainably reduce the cost of metered power supply in a situation in which tube well owners account for a significant proportion of electricity use.
However, with tight and intelligent supply management, in the particular context of South Asia, rational flat tariff (and intelligent power supply management) can achieve all that metered tariff regime can, and more. Flat tariff will have to be raised, but the schema we have set out can cut power utility losses from farm power supply substantially. Total hours of power supplied to farmers during a year will have to be reduced but farmers would get good-quality power aplenty at times of moisture stress when they need irrigation the most. Power supply to agriculture should still be metered at the feeder level so as to be able to measure and monitor the use of power in irrigation in order to manage it well. In this way, the huge transaction costs of metered charge collection would be saved; and if power utilities were to begin viewing farmers as customers, the adversarial relationship between them could even be turned into a benign one. While metered tariff regime will turn groundwater markets into sellers' markets hitting the resource-poor water buyers, rational flat tariff would help keep water markets as buyers' markets, albeit far less so than would be the case under the present degenerate flat tariffs (see Shah, 1993 for a detailed argument). Rational flat tariff - under which power rationing is far more defensible than under metered tariff regime - will make it possible to put an effective check on total use of power and water, and make their use more sustainable than under the present regime or under metered tariff. Moreover, restricting the total hours of operation of farm supply would help greatly curtail technical and commercial losses experienced by SEBs. Above all, rational flat tariff can significantly curtail groundwater depletion by minimizing wasteful resource use. On the basis of an International Water Management Institute (IWMI) survey of 2234 owners of diesel and electric tube wells in India, Pakistan, Nepal Terai and Bangladesh, it was concluded that electric tube well owners subject to flat tariff but unrestricted, poor-quality power supply were worked 40-150% more horsepower-hours compared to diesel tube well owners with greater control over their irrigation schedules. It can easily curtail groundwater draft by 13-14 million electric tube wells at least by 10-14%, i.e. approximately 12-21 km3/year, assuming electric WEMs pump a total of some 120-150 km3 of groundwater every year.
Contrary to popular understanding, rational flat tariff is an elegant and sophisticated regime management, which requires a complex set of skills and deep understanding of agriculture and irrigation in different regions. Power utilities in South Asia have never had these skills or the understanding, which is a major reason for the constant hiatus between them and the agriculture sector. One reason is that SEBs employ only engineers (Rao, 2002). In the power sector reforms underway in many Indian states, this important aspect has been overlooked in the institutional architecture of unbundling. Distributing power to agriculture is a different ball game in this region from selling it to townspeople and industry; and private distribution companies will most likely exclude the agricultural market segment in a hurry as being 'too difficult and costly to serve', as Orissa's experience is already showing.25 Perhaps the most appropriate course would be to promote a separate distribution company for serving the agriculture sector with specialized competence and skill base; and predetermined government subsidies to the farming sector should be directed to the agricultural distribution companies.26
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