Why Make Something Plentiful Scarce?
In India, As Much As 40% of Electricity is Not Paid For
When something is naturally plentiful, should it be made artificially scarce just so a handful of insiders can charge everyone else billions? This 2012 articles is from Associated Press, Aug 3.
by Erika KinetzA decade ago, Chandrakant's fishing village in India's financial capital Mumbai lived mostly by candlelight. What people did not have -- electricity -- they stole.
It was easy enough to hook onto the two thin power lines that passed over the village and take a little for themselves.
Today, his settlement has moved up the feeding chain of Mumbai neighborhoods and most residents have city electricity meters. But the loose habits of the past persist. Residents still steal power on special occasions, weddings, or funerals that need to be lit brighter than their home meters can bear.
An electrician like Chandrakant -- who asked that his full name and that of his neighborhood not be revealed because of his illegal activity -- just hooks onto one of four main distribution lines in the village, with the quiet approval of local officials.
India's power sector is lousy with thieves. Men like Chandrakant are the least of them.
As much as 40% of the power generated in India is not paid for. The bulk of it is stolen.
If that seems unsustainable, it is.
India suffered the worst blackouts in history this week, which left over 600 million people without power. The lights are back on, for now, but the crisis is evidence of deep problems in a sector teetering on the edge of bankruptcy for the second time in a decade.
Investigators have yet to pinpoint the cause of this week's shutdowns. Early, contested reports suggest states were drawing more than their share of power. Scanty rainfall has driven up demand, as farmers switch on electric pumps for irrigation, and crimped hydroelectric supply, which generates about 20% of India's electricity.
The deeper problem, however, stems from decades of populist pricing and inefficiency that have pushed losses at state utilities to an estimated $10 billion in the year that ended in March, according to the Planning Commission, a top government advisory body. That's roughly 1% of India's gross domestic product.
Losses from theft aside, state utilities are losing increasing amounts on every unit of electricity they sell because tariffs set by regulators have not kept pace with rising costs.
In the most recent fiscal year, utilities lost an estimated 1.07 rupees (about 2 cents) per kilowatt hour, up 40% since fiscal 1999.
New Delhi is now contemplating a $21.7 billion bailout for state utilities, last thrown a lifeline in 2001.
The problem really begins in the ground, with coal, which accounts for more than half of India's electricity supply.
Efforts to force Coal India -- an inefficient government behemoth with a near monopoly on coal mining -- to ramp up supply have foundered. Fights over land acquisition and stalled environmental clearances have made it difficult to open new mines. Power companies now are looking overseas for coal.
In the last four years, the cost to utilities of buying power rose 21% -- faster than ever before -- but they have been unable to pass that to consumers because of price regulations.
Politicians currying favor with the farm vote have granted free or heavily subsidized power for agriculture, while idealists have fought to bring affordable light to the poor. Much of rural electricity is unmetered, creating opportunities for abuse.
Regulators have been reluctant to raise consumer prices, preferring to push utilities to become more efficient. States don't want to cede control of their massive utilities, which rake in billions of dollars in annual revenue.
With their rickety finances, state power companies have not been able to keep pace with rising demand and have expanded the grid faster than they can manage it, analysts say.
Even though Indians use very little energy -- per capita consumption is a third of the world average -- there is not enough juice to go around. India has allocated 14.5% or more of its budget to the power sector since 1969, but has managed to add only half has much capacity as planned for the last 15 years.
At peak times, demand outstrips supply by over 10%, according to the Planning Commission.
Lack of staff means broken meters go unfixed and new areas are hooked to the grid before a billing system is in place, adding to losses.
Pressure for price hikes is building. Banks have stopped lending to state utilities, which has forced them to ration electricity because they don't have enough cash to buy more power.
The failure of Indian utilities has wider repercussions for the economy, argues Eurasia Group analyst Seema Desai.
It puts at risk the finances of private companies that sell utilities power, creating a disincentive to investment in a sector that badly needs it.
India's mainly state-backed banks loaned a lot of money to power companies and face large write-downs that could lead to a credit crunch, she said.
The timing could not be worse for New Delhi, which is under pressure to reduce its fiscal deficit even as slowing growth imperils tax revenue.
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JJS: Three things come to mind, one contemporary, one futuristic, one historical.
Looking forward, can the global ecosystem really afford to have immense India burning more coal? That hardly seems sustainable. If only the article had explained why India, one of the sunniest places on the planet, could not use photovolatics or other benign alternatives.
That aside, it sure is easy for some to call a consumer a thief but it’s hard for some to call an insider a thief when the insider acts like troll under a bridge, demanding a toll from every passer-by, and contributes to inflation, which swells asset values but crushes the poor. So let’s take a look at property, specifically, at the evolution of property.
Looking backward, when does a popular good stop being private property and organically start being public property? For instance, a stretch of land that falls into common use could stop being private property, pedestrians could stop being trespassers, and the path could become public property; American law has a section to cover just such an occurrence. On the other hand, much modern science and technology uses calculus. Should Newton or Leibnitz, the inventors of calculus, still be getting royalties -- or, actually, their descendants today?
Utilities used to brag about providing electricity “too cheap to meter”. Technology does make it possible to get rid of much of the cost, and hence much of the price, of lots of goods. Rather than let just a few insiders on top the food chain grow rich at the expense of everyone else, why don’t we go ahead and do that? Consider much knowledge and technology to be public, and share those manmade fruits that results from generations of progress. It’s not exactly geonomic policy but it does seem like common decency.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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