Good News for India's Power Consumers-VRK100-20Dec2012

Some Good News for India’s 
Power Consumers in 2013!

From Free Power to No Power!

Before I share the good news with you, let me put some facts before you. Riding on the promise of free power to farmers, the Congress party came back to power in the state of Andhra Pradesh in 2004. Today, the state has been reeling under continuous power deficit due to a variety of reasons. What a transition from free power to no power! Most of the AP farmers, businessmen and other citizens now get interrupted supply of power that too only for a few hours, throwing their daily activities out of gear.

This AP model has since been followed by politicians in other states, with varying degrees of success. Many more politicians will continue to promise free power in future.

When it comes to retaining or attaining power, Indian politicians are very smart. Of late, they have started promising free laptops/tablets to students. But with no electricity supply, how will students use these “free” laptops? May be on herbal fuel, as promised by the infamous Ramar Pillai a few decades back. In future, our politicians may offer Apple tablets (tablet computers) as freebies, who knows!

Crashing Down and Sprinting Backwards:

A few weeks back, the Government of India had tossed, in a cavalier way, a fresh crumb of Rs 2,000 crores to Air India, which has been bleeding internally – I don’t know for how many years. The state-owned Air India was once the dominant airliner in India but now its place has slipped to third or fourth due to intense competition. Air India has been on a perpetual life-support system and I hope the situation will continue in future also.

Competing with Air India are other public sector telecom companies, such as, BSNL and MTNL – sprinting towards intensive care unit (ICU). In the last five years, BSNL (Bharat Sanchar Nigam Ltd) has come down from first place to fifth place now – being dethroned by the likes of Bharti Airtel, Vodafone and Idea Cellular.

Public sector oil marketing companies, IOC, BPCL and HPCL too have been making huge losses, due to very high subsidies on diesel, LPG and kerosene. And we’ve forgotten about their losses. These OMCs have not been able to make fresh investments in capacities/refineries or new exploration – negatively impacting India’s energy security.

Indian banks, mostly state-owned ones, too may eventually and inevitably suffer big losses on account of their loan exposure to such public sector companies with suspect fundamentals – technically they may not lose money due to the perception that some of the loans enjoy sovereign guarantee from the governments. But we never know for sure.

  

Restructuring or Bankruptcy?

Let us turn our attention to the financial situation of our state power distribution companies or Discoms or state electricity boards (SEBs), owned by state governments. The following is a quote from a Reserve Bank of India report of October 2012:

“Distribution of power has come under financial stress, with state power distribution companies (Discoms) sitting on an accumulated debt of  Rs 1,90,000 crores as on March 2011. A large amount of bank finance is stuck in bad loans to these Discoms.”

The accumulated losses of Discoms are Rs 2,46,000 crores. In September 2012, the Government of India announced a debt restructuring package for these Discoms. My feeling is that this debt restructuring is just a disguise for prolonging bankruptcy.

Creative Resurrection:

One of the established tenets of capitalism (of course, we say we are a socialist republic – which is mere nonsense) is creative destruction – but in India, we have made a strong foundation for the concept of “creative resurrection” – anything can be resurrected and the resurrection process will continue for decades and centuries!

Skills Deficit:

One of the reasons for India’s inability to increase productivity is skills deficit in critical areas. Leave out critical areas, we seem to be short of miners also. Because Coal India has been unable to mine coal necessary for power-generation companies. This year India’s coal shortage seems to be in the range of 20 percent, and the deficit is being filled through costlier imported coal – losing precious foreign exchange in the disorder.

Crores of Indians suffered heavily at the end of July 2012 due to a power blackout in India, described by the media as the worst-ever in India’s history.

Finally, the Good News!

When people are in distress, human bondage will improve. We will come out of our cocoons and share our miseries with our neighbours. And we will talk more on our mobile phones (provided the battery does not run out due to lack of power supply). This is the silver lining. And revenues for telecom service companies will increase.

The final good news for India’s power consumers in 2013 is that our power bills may come down drastically in many states, because the state governments are expected to be unable to supply electricity to consumers!

P.S.: The author in an independent investment analyst. His views are personal. The opinions expressed in this article are with malice toward Indian politicians.

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