Restructuring Gujarat Electricity Board: outline of a strategy and proposal for action

Abstract

This note argues that the GEB needs to be restructured urgently. The principal challenge is really to overcome that major agency problem that results in leakage of enormous revenue. Plugging the leakages alone would make the GEB profitable at current average tariffs! The key elements of the restructuring would be to directly administer the agricultural subsidies through a coupon system; so that regulation becomes easy, and management of electricity distribution become entirely viable, and can, therefore, be commercially provided. Privatisation of distribution could be necessary given the entrenched vested interests acting against task orientation within the GEB. Yet, complete unbundling would only be dysfunctional at this stage. Some bundling of generation with distribution assets has value to the reform process, and to the ease of regulation. Other details, like the treatment of stranded (IPP) contracts, contracts with central power corporations (BPSAs), the grid rules, pricing of transmission charges, and the basic structure of the wholesale market for power are discussed. This note is in five sections. In the first section the reasons for the need and urgency of major reform of the electricity sector and restructuring of the GEB are brought out. In Section II the strategy is outline. Sections III and IV and V respectively bring out the key proposals discuss the modalities and lay the scheme in a sequence of events and decisions.