The Hindu : ADB suggests better targeting of subsidies

Online edition of India's National Newspaper
Monday, Dec 09, 2002

Southern States

Southern States - Kerala-Thiruvananthapuram

ADB suggests better targeting of subsidies

By Our Special Correspondent

THIRUVANANTHAPURAM Dec. 8. The consultants of the Asian Development Bank (ADB) have suggested better targeting of subsidies to the power consumers in the State.

In their report on the social aspects of the contemplated reform measures in the power sector, the consultants, Crisil and Nexant, say that even the upper end domestic consumers taking more than 250 units of power monthly are enjoying the benefits of subsidised supply from the Kerala State Electricity Board (KSEB).

Some of these consumers may be spending more than Rs. 1.5 lakhs on electricity charges a year (and, therefore, they can afford to be without subsidy support).

The consultants observe that the impact of reducing subsidy has to be evaluated taking into consideration the composition of the beneficiary sections.

Subsidy to agriculture consumers accounts for only a minor share of the total subsidy partly because of the limitations of the mechanism for delivering it to the farmers. A major part of the subsidy goes to the domestic consumers.

According to the consultants, those who consume less than 20 units a month and are exempted from paying electricity charges as a matter of Governmental policy receive Rs. 73.9 crores worth of subsidy annually. This accounts for only 15 per cent of the total subsidy being extended to domestic consumers.

Subsidies for the other sections of domestic consumers are: Rs. 136.2 crores for the 21 to 40 units group (27.6 per cent), Rs. 122.3 crores for the 41 to 80 units group (24.8 per cent), Rs. 104.8 crores for the 81 to 120 units group (21.3 per cent) and Rs. 55.6 crores for the 121-150 units group (11.3 per cent).

The consultants point out that while even the richest domestic consumer is getting the subsidy, nearly 20 per cent of the State's population, falling in the poorest of the poor category, is not receiving the benefit of this subsidy at all since the people in this group are not having electricity connection. Thus, there is sufficient justification for ensuring that the subsidy goes to the really deserving sections.

The consultants say that their report is based on exiting studies and secondary data, in addition to public consultations with different stakeholders. A point stressed in the report is that a large majority of the consumers is dissatisfied with the services offered by the KSEB at present. According to the consultants, 75 per cent of domestic consumers spend more than Rs. 20 a month to compensate power shortage.

``People wish to have a better quality of power supply. (But) Are they ready to pay,'' the consultants ask.

They observe that ``available evidence does not indicate that wish for improvement in quality of supply is backed by willingness to pay more. Their finding is that only in a small section of domestic consumers (around 25 per cent) the expense occasioned by the poor quality of power supply is more than the subsidy received. And, only a still smaller section is willing to pay an amount (for quality power supply) which is more than the subsidy received.

Referring to the impact of the reforms on the KSEB employees, the consultants say that proper legal measures and other support mechanisms should be put in place to ensure job security and terminal benefit security to the employees.

One of the key points thrown up during the public consultations was that there is ``widespread apprehension against privatisation'' in Kerala. There is also ``opposition from some quarters to reform as a conditionality of ADB loan'', the consultants confess.

There are also apprehensions among the KSEB employees about ``social support for redeployment of staff, rationalisation of wages and proper management of human resources''.

The consultants, however, maintain that the ``inability to bring in (even) those changes for which there is no opposition from society indicates the need for structural changes in the KSEB''.

Power theft is one factor increasing the burden of the KSEB and also the upright consumers. The consumers have the right to see that the collusion between the power thieves and the lower level staff of the KSEB is dealt with. Political interference that plays a role in preventing action against power thieves also has to be stopped, the consultants aver.

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