Should There Be Competition in power distribution?
The electricity prices in Delhi have seen a steep rise over the past decade. This is highly ironic since the privatization of power distribution should have ideally led to a reduction in prices of electricity in Delhi. Let’s draw an analogy with the telecom sector. When the mobile phones were first introduced in India, the call rates were Rs 16 per minute. After a regime change in 1999 when Atal Bihari Vajpayee Government was formed, better liberalization policies were introduced. Private competition was introduced and the government stake was reduced even in the existing public telecom companies.
After 1995, the government set up TRAI (Telecom Regulatory Authority of India) which reduced the interference of Government in deciding tariffs and policy making. The DoT opposed this. The political powers changed in 1999 and the new government under the leadership of Atal Bihari Vajpayee was more pro-reforms and introduced better liberalization policies. They split DoT in two- one policy maker and the other service provider (DTS) which was later renamed as BSNL.
The proposal of raising the stake of foreign investors from 49% to 74% was rejected by the opposite political party and leftist thinkers. Domestic business groups wanted the government to privatize VSNL. Finally in April 2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it open for sale to private enterprises – wikipedia
The result needn’t be emphasized. As of 2012, there are over 900 million mobile phone subscribers in India. Basically, anyone who is working has a mobile phone. The call rates are now as low as 60 paise per minute. That is the beauty of competition. It reduces monopoly and makes more options available to consumers.
So is it actually possible to adopt the similar model for electricity? This is the mantra that Vijay Goel, Delhi BJP president, thinks can revolutionize the way power is not only distributed in the city but if successful, can also be adopted throughout the country. This will also ensure as much as 30% reduction in power tariff. But is it actually a possibility or just Vijay Goel’s quixotic fantasy?
Energy Choice is a relatively new concept which is increasingly finding acceptance throughout the world. In India, the companies that supply electricity to our houses are in fact distributors which are distributing this electricity after purchasing it from a supplier which is usually the government. To understand this, think of this system as a movie which after it has been produced, is sold to various distributors who then sell them off to individual cinema halls.
In power distribution’s case, the present situation is basically a non democratic system where one or two players have established their monopolies over certain territories. And since there is no healthy competition, the prices of electricity have not come down. The National Tariff Policy of 2006 was made to in fact encourage competition for power distribution as
It would have given users wider choices which would force the companies to remain on their toes and provide top notch service.
It would reduce the prices as is usually the case with all sectors where there is healthy competition
Unfortunately though, due to vested interests or faulty implementation of the policy, not enough players have emerged in this sector which would have benefited tremendously otherwise. World over, there are many states where multiple power distributors are in operation. In the state of California, US alone, there are more than 25 companies involved in power supply to consumers. Consumers have far more choice and this of course ensures quality distribution.
If the telecom sector can be opened up, then the power sector needs to be opened up as well, especially the retail side distribution part (though I do not see why the supply side should not open up as well but that’s a debate for another day). All in all, healthy competition in power supply is an idea whose time has probably come and if Delhi’s pilot project (assuming Vijay Goel’s idea will be implemented) is successful, this may revolutionize how power distribution is done in India.