Aargh!!! Not another...

Another day, another irritant...

I woke up to this (courtesy Mint) - not my idea of a great start to the day.

 

In a nutshell, the issue is thus: India is suffering from a major power shortage crisis.  The only way out of this crisis is more power generation. The government has tried (for 61 years now) and has realized that it cannot build generation capacity fast enough. Enter private power producers. These guys will put at RISK (this is a term that ALL bureaucrats should be drilled with - in fact, there should be a separate section in the IAS exam on risk and reward) millions and millions of dollars, and produce electricity.  They will try to lock in long term offtake contracts that gives them adequate return for the risk they are taking with their millions. Electricity cannot be stored - if not used, it goes waste. For this reason, they keep a small percentage of power uncommitted so that they can sell it in the spot market to overcome any sudden requirements. For this, there is a market mechanism to determine rates that these producers get - it is a simple auction on an electricity exchange - the buyer sees prices, and decides if he wants to buy (if so how much) or no.

Enter Mr. Bureaucrat. He is all-knowing and all-powerful. He thinks he is smarter than the market. He is in addition, a bleeding heart. He says - from now, you cannot charge more than Rs. x per unit. He justifies it thus - “How can an MPP developer sell power at Rs8 per unit while it is only costing him Rs2 to generate" The learned gentleman does not realize that there is a risk that someone is taking that needs a reward. In any case, how does he justify the cap of Rs 6 per unit?? So he is saying - you can make 3 times your money, not 4 times. I am the arbiter and judge of this, and not the market. This is because I am smarter and wiser than the market. 

Is this bureaucrat going to guarantee offtake? What if there is no demand for power, or no transmission capacity at a particular time from the power plant to the user? Then the producer makes electricity for Rs 2 a unit, and cannot sell it. So the money goes waste. Will this generous gentleman then assure offtake?

The net result - government intervention in pricing will kill private investments in power generation or power trading. India will continue to be condemned to live the life that its bureaucrats thinks she deserves. 

It would be comic if it were not so pathetic.