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Industrial Development of Orissa and Role of Electricity, Shri R V Shahi, Former Secretary, Ministry of Power

Society of Geoscientists and Allied Technologists (SGAT), Bhubaneshwar (Orissa), has been very active in promotion of mineral development activities in India through Symposia, Seminars, Workshops etc. This non-profit organisation was created in the year 1980 and has also been engaged in studies and research on the subject and has been bringing out journals, books and information brochures, aimed at disseminating experience and research based information. The SGAT organised a Workshop on "Requirement for Mining and Mineral based Industry in Orissa" at Bhubaneshwar on August 1, 2009. I was invited to deliver the Keynote address focussing on Electricity.

Among the States in the Eastern Region viz. Bihar, Jharkhand, Orissa and West Bengal, Orissa has emerged, in last few decades, as the most progressive State. If we consider the country as a whole, Eastern Region is the weakest of all. Per capita consumption of electricity does give a fairly reliable indication of the extent of development of the region or the State. Per capita consumption of the country is approximately 650 Kwhr per head per year. There are a States like Gujarat, Delhi, Maharashtra, Punjab, Haryana, whose per capita consumption are substantially higher than the national average. It can be seen that these States also present a better picture of their development as compared to others. Per capita consumption of Eastern region is less than 300 Kwhr. But, Orissa is not very far from the national average, which also means that the remaining three States in the region have significantly lower per capita electricity consumption.

In the Industrial development of any area two most important factors, apart from the requirements like good work culture and infrastructure, are minerals and water. Orissa is endowed with both - abundance of water and plenty of minerals. It has one of the largest coal reserves in the country, and that too easily extractable at relatively much lower cost. It has minerals necessary to produce steel and to produce aluminium and so many other metals. It also has relatively a much better and more disciplined work culture. Inspite of all these, if it is still continues to be one of the poor States, we need to analyse as to why it is so. Rural Orissa and Particularly Western Orissa present a very disturbing picture. According to Census 2000, when in the Ministry of Power we were identifying States where rural electrification is deficient, we found Orissa to be one of the six worst States in which more than 80% of rural households did not have even connectivity for access to electricity. The other five States are Assam, Bihar, Jharkhand, U.P. and West Bengal. For a mineral rich States and that too with so much of coal reserves and water resources, to be ranked among the worst six for rural electrification should really be a matter of great concern.

Keeping in view the richness of natural resources, various industrial and business groups have rightly focused their attention for developing power projects, steel plants and aluminium plants. Industrialisation which has happened so far has enabled Orissa to be a front runner in the Eastern region. But the potentials that Orissa has can enable the State to be a front runner in the whole country. We only have to examine how it can be done and chalk out a road map to accomplish this. This would obviously require political determination, administrative vision and acumen and industry friendly attitude. Keep these three combined there is no reason why Orissa, in next few years, could not occupy a place of pride among the highly developed States in the country.

Let us begin with Power, because it is electricity which will be the prime mover and propeller of all industrial establishments and economic activities. Almost all the organisations in the power sector, both public and private, have shown keen interest in developing a number of Super Thermal Power Projects and Ultra Mega Power Projects in Orissa. If the number of Memoranda of Association could be a tentative indicator, all these capacities will add upto almost 40,000 MW. Progress so far on any one of them has been negligible. We have to get deep into the causes as to why inspite of such huge interests, progress on ground is so inadequate. I recall, while in the Ministry of Power, we were formulating the Scheme of Ultra Mega Projects, we sincerely wanted that Orissa should be one of the first two States in which we should locate one of the pit head Ultra Mega Projects. In the first round, we could only get a site only in Madhya Pradesh with all possible cooperation from the Government of the State. In the second go, we could identify Tilaiya in the State of Jharkhand. The response from the State of Orissa for an Ultra Mega Project, I would not say was not there, but definitely it was not there to the extent that was needed and that would have enabled the project to happen. Experience of a number of other developers also indicates that a lot of procedural and attitudinal changes would be necessary to expedite the process.

One of the other reasons which has stood in the way of taking up these project has also been the insistence of the Government to have a portion of power generated as free power on payment only of the fuel cost. This obviously is not in line with the general policy and practice in the country. By now, India already has more than 90,000 MW of coal based thermal power. There is no such practice of allowing free power to the State in which a power plant is located. Indeed, there is sufficient weight in the argument that extraction of coal and consequent generation of power does lead to environmental ramifications. Environmental measures and various Environmental Regulations all aim at mitigating these problems. State is compensated financially through payment of Royalty on the basis of production of coal. The rate of Royalty keeps getting reviewed and if there is a case it should definitely be increased. Similarly, both coal producing and power producing companies must take adequate measures not only technically but also financially to see that adverse impacts of coal production and power production on environment are fully mitigated, besides a number of adequate community development measures to be implemented by these organisations. But, the desire of the State that they should earn revenue from free power does not look convincing at all. After all, we have the experience of free power in case of hydro projects. Not even a fraction of revenue generated has been used by the concerned State Governments for infrastructural development in the areas.

Electricity Act 2003 provides a highly liberal and enabling framework for setting up captive power generation capacities by individual organisation or as Group Captive. While formulating the rules for captive plants, the Ministry of Power, in consistent with the spirit of Electricity Act, had provided even more liberal approach to encourage Group Captive Plants, keeping in view the financial limitations of a number of companies and also the fact that an optimal size of power plant may be more cost effective as well as energy efficient. It is expected that State Governments encourage and facilitate these plants, so that power problem of the country is mitigated to the extent these consumers depend on their own and leave the grid supply to be organised by utilities. As a matter of fact, the captive plant rules also provide that these plants could almost have double the capacity of their own requirement. The idea was that the surplus power to the extent of almost 50% of the captive plant capacity could be supplied to the grid and these arrangements could provide much needed relief to meet the shortage problems. It is expected that these provisions could be utilised in the interests of both the industry as well as the power sector.

While the captive plants are exempted from the cross-subsidy surcharge, if a large consumer has to use power from a generating company, a cross-subsidy surcharge, as decided by the Regulatory Commission, has to pay to the distribution utility. Distribution Utilities have to provide Open Access on their distribution network to facilitate supply of such power from the generating power station to the consumer. Many States have been following an industry friendly approach in this regard in providing Open Access, while many others have been having highly restrictive approach, policies and procedures. Similar has been the experience in so far as the decisions of the Regulatory Commissions are concerned - some of them have been facilitative while others not so encouraging. In Orissa also the approach has been somewhat less favourable than expected by the industries.

Orissa electricity sector has the unique distinction of being the trend setter for power sector reform. Even before Electricity Bill for the future Electricity Act (which came into being in 2003), was being conceived, Orissa came out with the historic Orissa Electricity Reform Act, 1995. Subsequently, this legislation became a reference for many other States which followed this legislation, made modifications suited to their specific needs and came out with State specific Electricity Reform Act.

Again, Orissa became the first State to have reorganised the Electricity Board into generation, transmission and distribution companies. The reform process went still further when the Government decided to privatise the electricity distribution in 1999 by forming four distribution companies. I had the privilege of being closely associated with this historic initiative. BSES, on the basis of International Competitive Bidding, was identified as the winning Bidder for two distribution companies, one went to AES of U.S.A. and for the third there was stalemate. I still recall, I as the Chairman of BSES was invited by the Government of Orissa, to take over even the third distribution company. Accordingly, BSES was given West Company, South Company and North Company (WESCO, SOUTHCO and NESCO).

Experience has shown that to privatise the whole State was too optimistic. Perhaps, a more pragmatic approach would have been to start with towns and cities and progressively expand. This would have been a far more acceptable and smooth exercise. It would have facilitated proper and progressive transition management during the period of learning curve and would have prepared the private agencies to progressively cover more and more areas. In any case, this exercise, inspite of several challenging issues has led to substantial reduction in Aggregate Technical and Commercial losses. In the year 1999-2000, when the distribution was privatised, the Aggregate Technical and Commercial loss was of the order of 56.71% for the State as a whole, varying between 61.6% and 53.5% in various distribution companies. This has now reduced to about 40.9% in the year 2007-08. There is no doubt that the pace of reduction and control of theft of electricity has been rather slow. Also, there is no doubt that if the distribution had not been privatised the situation would have been even worse.

There are several achievements of reform initiatives. These include reduction in distribution loss, increase in collecti0on efficiency, reduction in power shortage, lowest tariff rates in the country, no subsidy burden on Government, mobilisation of financial resources for growth, practically no tariff increase in last seven years, both hydro power and thermal power generating companies are profit making etc. With about 3,300 MW of installed capacity within the State and about 1,000 MW of Central Generating Plant Share, Orissa has the largest power in the Eastern region. Since reorganisation different entities have focused on their own areas of responsibilities. Transmission company has accordingly strengthened the transmission and sub-transmission systems. What is, however, is the greatest area of concern is the rural electrification. Even now more than 18,000 of around 47,000 villages are un-electrified. And, more than 48,000 habitations are un-electrified out of about 70,000. HHHHH Here again, I recall, Orissa was rather very slow in starting the implementation of Rajiv Gandhi Grameen Vidyutikaran Yojna which was introduced by the Ministry of Power, Government of India in the year 2005.

Orissa should and, in fact, it can become the power hub of India. Consequently, it can become one of the most industrialised States of the country. This would require toning up of administrative procedure and apparatus. Unless we give the business and industry a feeling that they are invited, that their problems will be resolved in a reasonable time frame, that handholding of the Government will continue to facilitate speedy project development, we may not achieve the growth like many other States have been able to secure. Policies and procedures have to pragmatic and supportive.

The power sector of Orissa presents a highly satisfying picture of path breaking historic reform initiatives with several achievements arising out of these reforms, and, at the same time, it also presents a contrasting and somewhat disturbing scenario of poverty laden rural Orissa, large part of which is yet to have access to reliable electricity supply. There are many States which do not possess the natural endowments as Orissa is lucky to have. Yet, inspite of rich resources, and that too in the energy sector, if a large section of society is deprived of energy access, we have a long way to go to fix. This is a challenge, but more importantly it is a great opportunity - an opportunity to grow and an opportunity to achieve an inclusive growth, benefits of which are available in an equitable manner to all sections of society.

The Finance Minister of Orissa, in his inaugural address, responded positively on the need for facilitating development of an Ultra Mega Project, providing necessary support and assistance to various project developers, so that the MOU's which have been signed are translated into development of power projects as early as possible. He also brought out an issue relating to APDRP and mentioned that since Orissa was the first State in the country to have taken several reform initiatives in the power sector, which also included privatisation of electricity distribution, it should not be deprived of the benefits of the Govt. of India Scheme on APDRP. As a matter of fact, for taking historic initiatives in power sector, this State needs to be recognised and rewarded rather than being excluded from the applicability of the APDRP. This indeed is a valid point and, if the APDRP Scheme has made them ineligible just because the distribution is privatised, the matter really needs to be revisited.