Power Reforms in Kerala:
Exploring New Approaches under Electricity Act 2003

T.L.Shankar

I am going to deal with certain new aspects of state sector power management in this lecture. As far as the power sector is concerned unless there is a correct diagnosis the right remedies cannot be prescribed. In my experience in working for the power sector for the past 30 years, I feel grieved. In my view, the consumer for who the power sector is meant has not got any satisfaction. Infact, the sector is fast deteriorating in its performance. Much of what is going to be told is documented in the book Plight of Power Sector in India by Dr K.P.Kannan. The Kerala State Electricity Board has also brought out statistical figures for the current year and previous years with respect to the functioning of the board. I would deal with three aspects of Kerala’s power sector in this lecture. 1) Comparison of Kerala power sector with other states 2)Growth of power sector in Kerala and 3)The financial performance of power sector in the State.

There is a change in the power sector that has prompted me to take up the study of Kerala first. The reception to Electricity Act 2003 has not been satisfactory. Many states have taken the view that the Act will be the undoing of the sector. Many of them have suggested postponement of the Act. Some of the state governments are briefing the MPs to take up the issue in Parliament. I am presenting my views on how Kerala can become a vibrant state with its own power . We have to compare Kerala with other states because it has a very unique position among states. It is one state which has followed a pro-poor policy in all its planning and social development programs consistently. Kerala is one state which started with a Marxist government duly elected for the first time in world history. Marxism and electricity have a certain close relationship. We have undertaken a study of Kerala, Tamilnadu, Karnataka and Andhra because they are near and share some common characteristics whereas it would not be fair to compare Kerala with UP because they are poles apart although belonging to the same country. The population in Kerala is half the population of Andhra Pradesh. Per capita income is next only to Tamilnadu and much higher than Andhra Pradesh. Losses in power demand is 19 percent in Tamilnadu while other states have corrected. Per capita energy consumption in Kerala is 305 units which is the lowest. It is a combination of industry and domestic consumption that keeps the total consumption going. Irrigation pumps installed in Kerala is much less at 405. Domestic consumption is 46 percent of the total consumption which means more power goes to the people than in productive sectors. The number of houses electrified in Kerala is 67 percent while in the rest of South India it is 70 percent. So on the one hand we have the rate of consumption in domestic sector high but the number of houses electrified is low. And the major point to be noted is that industrial consumption is low. In the commercial category, the scene is a little unnerving because consumption per consumer in shops, hotels and other commercial establishments is 70-80 units per month. I can’t understand why it is low. In agriculture, power is not used for irrigation but to drain water after cultivation. Among industrial units, the High Tension customers have been been provided with a tariff that is lower than the average rate for all consumers. Consistently, HT industries have been underpriced in Kerala.

Historically, HT was underpriced to attract new investment. Many states have gone out of this historical trend in the 1990’s by increasing the rates for industry but not Kerala may be because of the poor response from new investors to set up industry. Three lakh new connections have been added and average rate has risen from 60 to 81 paise. In HT , the board tried to increase the price from 1.30 per unit to Rs 1.65 per unit and 1.65 to 2.22 per unit but the average rate is much higher. Industrial tariff in Kerala is only 20 paise more than the other consumers but in other states it is 200 percent more. In 1995-96, the State had already a small base of high paying consumers. Traditional high paying consumers like HT were not high paying consumers in Kerala. Commercial and domestic who constitute low paying customers had recorded 11 percent growth in consumption. After the tariff corrections made in 2001, the consumption growth fell to 7.8 percent. HT-EHT consumption rate has come down from 3 percent to 1.23 percent.

Kerala has been recording a mandatory return of three percent a year. In terms of average tariff correction , Kerala has done well. You can’t do more. The subsidy required from the government to make up this three percent return is Rs 1315 cr. What used to be Rs 2 lakh has come upto Rs 278 cr in 1996-97 and Rs 321 cr in 2001. This has now come up to Rs 1313 cr. That is when tariff correction became absolutely necessary. Evan after correction the subsidy required for meeting the 3 percetn return is 1318 crore. This goes towards meeting the revenue expenditure and is not used for developmental purposes. The revenue from sale of power has shown a healthy increase. Total increase has been growing.Expenditure has been growing faster, instead of making a three percent return, KSEB is making a three percent negative return.