Endless Restructuring of the Power Sector in Odisha

Abstract

Odisha in the mid-1990s was a poor state with limited rural electrification but plentiful vast coal and ample hydro supply. Enabled by a cross-party consensus that the state should become the “powerhouse of India,” Odisha was the first Indian state to take a World Bank package to design and implement reforms, including distribution privatization. The state utilities initially profited from selling cheap hydro power to neighbouring states, but the effect of reforms on citizen-consumers was negative: tariffs for existing consumers increased and rural electrification all but stopped under private discom ownership. This low-level equilibrium was sustained throughout the 2000s when a new conjuncture of factors imperilled sector finances: centrally-funded grid expansion led to an increase of costly-to-serve rural consumers, increasing demand forced a turn to higher cost thermal power, and industrial customers shifted to captive power. The failure of reforms is underscored by cancellation of the last three private licenses in 2015, throwing the problem back into the state’s hands. Odisha risks tipping from a low level equilibrium to a vicious cycle.