Social scientists often deride engineers and MBAs for their naïve confidence in technological solutions to development problems. I am aware of the naivete. Yet I do have an engineer like faith in what decent electricity provision can do for Bihar’s development. I have thought of the social, political and economic factors behind the wretched condition of power infrastructure in Bihar. A question I have often asked myself is: is there enough demand for better power supply in Bihar, specially in its rural areas? Even if someone sets up the power supply system once, what is the guarantee that the system won’t fall into disrepair and disuse again? I don’t have answers to these questions. But I do feel that even if these concerns are valid, electricity sector in Bihar still needs a big push. Biharis may not deserve this push, but they do need it.
Just look at the numbers: less than 10 percent of Bihar’s households have electricity connection. In a state of 90 million people, there are only 1.85 million consumers. 18,217 of the state’s 45,103 villages remain un-electrified. Even the privileged few, who have electricity connections, get an indifferent power supply and have to rely on costly power back-up systems. In fact, BSEB handles just 8 billion kWh of electricity every year. After factoring in the technical losses in transmission and distribution—say at 25%, given extremely poor condition of the network—per capita power available in Bihar works out to just about 65 kWh/year. This is worse than Sub-Saharan Africa.
A big challenge in reviving the system is the Bihar State Electricity Board (BSEB) itself. It is by far the most inefficient electricity utility in India.
If we look at generation, BSEB owns two thermal power stations: Barauni (320 MW) and Kanti (220 MW), both in terrible state of disrepair for several years now. Only one 110MW unit in Barauni is producing any electricity. Kanti thermal power station has been transferred to NTPC and is a ruin, barely 25 years after its inauguration. NTPC is practically rebuilding it. Kanti is likely to generate 500 million kWh in 2009-10. Bihar gets most of its power (~bout 7500 MUs/year ) from central allocation and there is a huge unmet demand that will only increase as electricity spreads to more households and villages. The state badly needs new generation capacity. But given BSEB’s track record, the government would do well to let NTPC or private investors set up new plants and buy electricity from them.
The situation is not much better in transmission and distribution. ATC losses were 47-48% in 2007 by BSEB’s own admission. Actual losses must be higher. Half the consumers have meter-less connections and BSEB claims that agricultural consumption was 20% of the total consumption (890 MUs) in 2006. It later revised this number to 13% of the total (578 MUs). I think even this revised number is an overestimate, given the fact that it is hard to come by a running electric pumpset in Bihar. I have not seen any in my extensive fieldworks in the state. Minor Irrigation census also reports that only 10% of all pumpsets in the state run on electricity. Why would any farmer own an electric pumpset in Bihar when the flat rate is as high as Rs. 2400/HP/year with barely any power being available in rural areas? There is little doubt that like all state utilities, BSEB is also hiding some of its T&D losses as agricultural consumption.
BSEB’s inefficiencies are also apparent from the fact that while it gets electricity at an average cost of Rs. 1.88/unit, average cost at the consumer end is Rs. 5.00/unit (including subsidies and cross-subsidies) in 2007 and is projected to increase up to Rs. 5.27/unit in FY 2009. Transmission and distribution costs, including losses, are Rs. 3.39/unit—1.8 times more than the purchase and generation cost. This is too high especially when we consider the fact that BSEB does not have a large rural network.
What really hurts is that even for such high costs ((12 US cents/unit), the system provides unreliable and extremely poor quality service. In urban areas of Bihar, almost all business units and all households that can afford, rely on power back-up from diesel generator sets. As a result, the total consumer cost of power is very-very high, close to 25 cents/unit. Such high energy cost is one of the biggest stumbling blocks to development of both manufacturing and service sectors in the state. In rural areas, nearly all farmers rely on diesel pumpsets for irrigation and high cost of irrigation is a major barrier to the much needed agricultural intensification in Bihar.
The 13,723 employees of BSEB constitute what is probably one of the most vicious interest groups of Bihar. Their wage costs the state a fortune. For every rupee spent on power purchase and generation, BSEB spends 36 paise on paying its staff: current and retired. Staff costs account for 50 percent of the total revenue generated from power sales. But even more is lost to their corruption, inefficiency and intransigence to any reforms. Mancur Olson gave us a theory of how small eats big in public sphere; here is a prototype example with thirteen thousand people holding ninety million to ransom.
