Electricity Business in Tamil Nadu - The Thaw.

If we have to trace the long history of electricity in Tamil Nadu then we need to start possibly at or around 1980s.

With the political upheavals of the 1980s the economic stature of India took a complete slowdown.  The GDP growth rate fell to one of the lowest in the history of independent India by 1990. More important events happened in the end of 1980s. The economy spiralled down so much that the country ran into major economic crisis.

Economic Trend

Country stared down a very large balance of payment issue. 

With a new government stepping in, 1992 became a watershed year for Indian politics as well as economy. 

Power was and is the driving force behind economic growth, particularly, for third world developing nations. A struggling India, initiated many reforms in the market, including the power sector. 

With the dearth of capital that bogged the 1960s long behind us, the country accepted the shift to capitalistic economy. Power industry now saw the birth of new private power companies, particularly, in generation. 

Government encouraged industrial houses to invest in coal based thermal power plants which were the mainstay of the power economy. In a span of five years, power industry grew by leaps and bounds. Huge investments were done in the sector to take the total installed capacity to 4GW, a 200% increase in five years. 

Next ten years will see the power sector shift from a public sector stronghold to a private sector opportunity. By end of the millennium, India was ready to move to the next level in electricity business. 1997 say the birth of two major reforms. One, the telecom, the other the electricity. 

In 1997, Telecom Regulatory Authority Act was passed. In 1998, Electricity Regulatory Authority Act was passed in the parliament. Telecom grew by leaps and bounds while Power industry was beset with ongoing problems that are yet to be solved, even after 20 years!

Let me quote from the Electricity Regulatory Commissions Act 1998.

‘India's power sector is beset by problems that impede its capacity to respond to the rapidly growing demand for energy brought about by economic liberalisation.’

This is the first line of the Act mentioning the purpose and the objective. It goes on further to say,

‘It also aims at improving the financial health of the State Electricity Boards (SEBS) which are loosing heavily on account of irrational tariffs and lack of budgetary support from the State Governments as a result of which, the SEBs have become incapable of even proper maintenance, leave alone purposive investment. ‘

This is the statement of purpose of the first of a series of legislations that were brought in by the Central Government on Power Industry. The status continues to this day!

Power industry though started well, hit a wall when it came to discom restructuring.

When the Electricity Act became a law in 2005, state governments could not help towing the Central governments dictum. All states reorganized their distribution companies soon after the law came in. Tamil Nadu was one of the last to sign in, after much cajoling!

Even then, the structure adopted by Tamil Nadu was very ingenious and a prescription for sure problem. Designed to be opaque, the DisCom was a cash cow for the people in power and a drain for the exchequer. Nowhere in the history can anyone find a monopoly making losses and tending towards bankruptcy every four to five years.

Well, then, it is an accepted fact that governments and government organizations can never ever go bankrupt. Simply because the tax payers would pull them out at all costs. 

Tamil Nadu Generation and Distribution Corporation (TANGEDCO) was formed after much delay in the year 2010 along with Tamil Nadu Transmission Corporation (TANTRANSCO). 

A closer analysis of the company would show very clearly that the company was formed after careful scheming to escape any kind of monitoring. Transparency was the biggest casualty. What was generated and what was delivered could not be properly monitored because they were done by the same company and therefore, hiding information could easily be done.

This was a clear prescription for frauds and therefore, it was no surprise that the company went into a loss from the very second year, after the much-touted restructuring.

Another important factor to note is that TNERC in the early days of its formation, stuck to the neutral role that it had to play in an open electricity market. Some of the earlier orders were in line with opening of the market and that of TANGEDCO / TANTRANSCO.

TNERC passed an order in 2008 that TNEB should open itself for third party audit and ordered them to be ISO compliant. TNEB submitted in 2010 that two companies are being formed and once the process is completed, they will turn ISO compliant!

Ten years have passed. New Companies are in operation for a long time. They continue to stay away from any third party audit and therefore, ISO.

Let us jump back to 2003 when the Electricity Act was placed in the Parliament for the first time. It is worth looking into the debates that took place at that time.