'Shedding darkness', The Hindu, September 13, 2002.

A recent development in Kerala has a bearing on just economic arrangements worldwide. I refer to the fiasco of an hefty power-tariff hike being withdrawn hastily within days, following widespread scepticism regarding its rationale and in the face of sporadic violence by political workers. In the wake of the withdrawal, two sets of arguments have been bandied about with a competitive spuriousness. They reveal the role of vested interests in a democracy.

            In the evening of September 4, within hours of the rescinding of the proposed tariff hike by the government of Kerala led by A. K. Anthony, the leading national TV news channels had averred that this was a setback to the reform process in India and would be viewed as a test case by other state governments. While it is entirely likely that the events in Kerala would be watched, it is incorrect to suggest that a one-shot one-hundred-percent tariff hike is the appropriate strategy to turn around a blackhole of a state electricity board. One can conceive of instances when such a remedy is the only one, instances such as the quadrupling of world oil prices in 1979. Now, in the absence of a cutback in consumption, an oil-importing economy must absorb the shock. There is some such similarity of course in Kerala today, where an inadequate southwest monsoon has necessitated the state buying thermal power from elsewhere at a price far higher than its own hydel power. However, Kerala’s woes with its supply of electricity surely pre-date the erratic monsoon of 2002.

            It has long been recognised that the Kerala State Electricity Board is skating on thin ice, working a Ponzi scheme of sorts, by borrowing to offset losses on a continuous basis. This is unsustainable from a financial point of view. Unless, of course, you raise the tariff. However, if even after a tariff hike to clear-off all the accumulated losses the Board were to return to business-as-usual, so to speak, involving a value of power generated exceeding revenue it is left with raising the tariff on a continuing basis. Now this is unsustainable in a political sense. Not because the public have a insatiable revolutionary potential triggered by tariff increases, but because it is quick to spot pure mismanagement coupled with an income re-distribution.

            A blow to the reasoning of the Government of Kerala has been wrought by the Malayalam language media’s relentless reportage that the Board is yet to receive crores of rupees in the form of arrears for past release of power. This reveals that sums are owed both by private firms and public bodies, including departments of the government itself. The figure quoted has ranged from 400 crores to multiples of it! Nevertheless, the role of arrears must be placed in context when debating the said tariff hike. While retrieving arrears can recoup accumulated loss, it does not by any means negate the rationale of a price increase due to a cost increase, in the present case, due to the substantially higher price of acquiring thermal power. However, so long as the situation is murky and the public are left unsure of the necessary increase, it is left with the nagging suggestion that the price rise is a means of clearing-up a mess of the government’s making. It is unfortunate of course that the public’s tolerance of mismanagement and re-distribution is high so long as their own living standard is not threatened and, more importantly, if it is financed by public borrowing.

            The accumulated losses of the Kerala State Electricity Board are very likely due to three factors: arrears, loss in transmission and distribution, and low productivity in relation to the bloated financial reward of its employees. Between them, these divide into two sets of private interests, that of big business and that of the Board’s staff. Any tariff hike to cover arrears pays directly for the profits of private capital and the wilful negligence and downright sloth of public employees. To this extent, a tariff hike to be borne exclusively by consumers institutionalises the robbing of an honest Paul to pay a thieving Peter. This cannot by any stretch of the imagination be what the pundit had meant by ‘reforms’.

            Even as the national media was lamenting the end of ‘reforms’, the opposition in the present Kerala legislature was hailing the rescinding of the tariff hike as a `people’s victory’, no matter that while in power they had raised the tariff four times in a five-year tenure since 1997. This utter managerial disaster had contributed to a greater than one hundred percent increase in the tariff. Unless we believe that these were all driven by cost increases we have every reason to believe that they amounted to cynical manouvres of re-distribution to the two sets of interests mentioned above. Only the apparatchik would seek to argue that Kerala’s public see the political class’s opposition to the tariff hike as driven by the public interest as opposed to actually preserving what is at best mismanagement and at worst, in a poor country, a re-distribution towards the rich and the powerful. Just nobody has missed the tragedy that those who have never hesitated to wield the brutal power of the state machinery against their own people while in office now lead the picketting of public offices and encourage the destruction of public property in response to the decision of a democratically elected government.

            The argument of Kerala’s opposition parties that the hike is tainted because of its association with negotiations for a loan from the Asian Development Bank (ADB) is disingenuous, for it is public knowledge that it was the government of Mr. E.K. Nayanar that had initiated talks with that agency. In any case, though one may doubt seriously the wisdom of borrowing against projects that have no clearcut income streams in the future, it is not clear that one should object to a loan stipulation even when it may be in one’s interest to do so. For instance, how ‘bout a conditionality that the government must recoup its arrears within a stipulated time period? In the middle of a power crisis, we find a red herring of a demand that the government reveals details of its negotiations with the ADB. What would constitute a much more constructive act in the public interest is to demand that the accounts of the Kerala State Electricity Board be made public. After all the Board is a public body, and it must be open to social audit along with other public bodies.

            Rajiv Gandhi had once remarked: "We cannot run an inefficient system, call it ‘socialism’, and bill it to the poor." This sums up aptly the unravelling of the extant arrangements of Kerala’s electricity authority. Can anyone any longer argue that we have a credible case for disallowing private enterprise in power there? However, to the discerning, the message from Kerala has implications for much more than merely supplying it with electricity. It has to do with what we must expect of public bodies in this country. The illusion of a golden age home-delivered by politicians and bureaucrats left to themselves needs be lost forever. And a new enlightenment will be our reward.

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