Themes > Current Issues
27.11.1999
Cyclones, Power and Social Responsibility
Jayati Ghosh
The
cyclone that ravaged the coast of Orissa was one of the worst to affect the
subcontinent in this century. The scale of devastation that has occurred is
unimaginable: already the official death toll is close to ten thousand people,
although the situat ion has been so dire that no formal enumeration of the
dead has yet been undertaken. More than 20 million people are said to be affected,
and agriculture and industry in the region have been ravaged.
Around ten lakh houses are said to have been damaged, many beyond repair, as well as more than 30 lakh kutcha houses, rendering millions of people homeless. Nearly three lakh farm animals were killed, the extent of the crop area affected (with sta nding crops destroyed) exceeds 12 lakh hectares, and preliminary estimates of property loss range upwards of Rs. 1,000 crores.
Calamities as extreme as this will take years if not decades to recover from, even in terms of the most minimal reconstruction and repair. Quite apart from the enormous loss of human life, simply replacing physical infrastructure in a State that was alre ady one of the most absolutely poor and backward in the country is a task of huge proportions. The enormity of the requirement of providing immediate relief has clearly exposed both public and private agencies as being inadequate, and lakhs of people in at least nine districts continue to be in great distress, deprived of the most basic amenities and sometimes even of the means of survival.
In the wake of such a major disaster, the natural expectation is that all sections of society, especially those with the finances to make a difference, would step forward to contribute to the recovery and reconstruction effort. This expectation is even h igher vis-a-vis large industrialists and multinational companies (MNCs), which are increasingly prone to publicise their sense of "social responsibility". This is why some recent news reports of the response of at least one multinational company c omes as a shock, even to hardened critics accustomed to expecting the worst from such quarters.
According to a news report in a major national newspaper (The Indian Express, November 11), a major multinational company which owns majority share in the power transmission and distribution company supplying the coastal districts, has demanded fu ll compensation for its losses from the government, failing which it would triple the cost of electricity to consumers in the affected areas.
The United States-based multinational AES Corporation currently holds 51 per cent of the stock of the Central Electricity Supply Company (Cesco), which supplies power to consumers in the affected coastal districts of Orissa. The president and chief execu tive officer of AES, Dennis Bakke, came to India to review the post-cyclone situation, and apparently discovered that Cesco had sustained losses of around $60 million (Rs. 300 crores) due to the cyclone.
As a result, said Bakke, the company was asking the Government of India to bear the losses. If it refused to do so, Cesco would be forced to approach the relevant price-setting body, the Orissa Electricity Regulatory Commission, for a tariff revision whi ch he estimated could be as much as three times the present tariff. Obviously, the company felt that if the government does not share the burden, then the people would have to bear the cost.
In the wake of the cyclone, many public and private companies have declared concessions to the affected people, who are already reeling under very adverse material circumstances. Thus, the Department of Telecommunications has announced special concession s to consumers in the region. In the case of electricity, the supply of which has been so badly disrupted, it would be expected that consumers who are already suffering because of no or low provision would at least be spared the burden of higher prices. Indeed, total restoration of earlier levels of electricity supply in the affected districts is expected to take as long as six months.
However, any such concessions are obviously not under consideration by Cesco. Bakke argued that the company is under financial stress because of poor revenue collection, making it difficult, in the management's assessment, to give any relief to consumers . Perhaps more significantly, there is no legal obligation for the company to do so. The majority shareholding in Cesco was purchased from the public sector Power Grid Corporation of India Limited, which continues to hold 49 per cent of the shares.
Under the terms of the agreement of sale, there was no contractual provision about covering its losses arising from any calamity. Further, remarkably for these obsessively risk-averse multinational companies, no disaster insurance cover had been taken fo r any such eventuality; in fact, the company claims that it was in the process of taking out insurance on its infrastructure when the cyclone struck. Since it had clearly been inefficient in insuring itself in time, it would choose instead to make its cu stomers - including some of the poorest people in the world living through a major catastrophe - pay for its lapse.
Even if we set aside the inevitable knee-jerk reaction that this is likely to evoke in terms of the perfidious behaviour of MNCs, there are some important issues that arise in this context. The first issue relates to the whole pattern of privatisation of the generation, transmission and distribution of electricity that has accelerated in many States in recent times. Many observers have noted that in several States this process has been characterised by a piecemeal approach, vagueness, secrecy and lack o f transparency in the legal follow-through, and a tremendous lack of public participation and therefore of democratic accountability in the final institutional framework that has resulted.
The haste to privatise came from a perception that public sector companies were unable to deliver not only because of bureaucratic interference but also because they could not be professional in their approach in terms of efficient provision and recovery of costs. But the pattern that now seems to be followed in many cases in this sector is that private investors (usually multinational investors) will pick up all the profits (in some cases, even guaranteed profits) while the government exchequer bears a ll the risks. So taxpayers end up funding losses even though the essential idea inherent in private entrepreneurship is that profits are rewards for risk-bearing.
It is now apparent that another source of trouble in dealing with natural monopolies such as electricity provision is that when the private sector is given control then monopolistic practices are also much more likely. In such circumstances, at the very minimum, the regulatory devices need to be very carefully specified and comprehensive. But this is clearly not so yet in India.
The current experience in Orissa illustrates one way in which this can become extremely problematic. In this case, the people of the State, especially in the coastal region, seem to have lost out because of the electricity companys attempt to make them p ay for a major natural calamity which has already caused them huge dispossession. The State Government has lost out because it does not get the advantage of revenues even as it is forced to take on losses if it does not want consumers to be charged more. It is difficult to understand, therefore, why the entire process was necessary at all.
The entire privatisation process has been sold to the country on the argument that this would help the government get out of things that the private sector can do better so that the government can concentrate on what the private sector will not do. This episode shows that like so much else in the language of liberalisers and of globalisation, there are poignant gaps both in language and its interpretation in reality, which can be appropriated by those in power.
Perhaps this is why Union Power Minister P. Rangarajan Kumarama-ngalam, talking about power and the Orissa cyclone in a conference involving the Central Electricity Regulatory Commission and the United States Energy Association on November 2 (Business Line, November 3) could offer no more wisdom than that the Orissa Electricity Regulatory Commission and the privatised distribution and generation companies "will have a challenging task ahead of them in the reconstruction of the State with a human face".
That statement was made before Bakkes made his comments quoted above. If the past and present practice of post-liberalisation governments is any indication, it is possible to predict that the face of the present BJP-led Government will be much more "huma n" to multinationals than it is towards those Indians who happen to find themselves in a crisis as in Orissa.
Around ten lakh houses are said to have been damaged, many beyond repair, as well as more than 30 lakh kutcha houses, rendering millions of people homeless. Nearly three lakh farm animals were killed, the extent of the crop area affected (with sta nding crops destroyed) exceeds 12 lakh hectares, and preliminary estimates of property loss range upwards of Rs. 1,000 crores.
Calamities as extreme as this will take years if not decades to recover from, even in terms of the most minimal reconstruction and repair. Quite apart from the enormous loss of human life, simply replacing physical infrastructure in a State that was alre ady one of the most absolutely poor and backward in the country is a task of huge proportions. The enormity of the requirement of providing immediate relief has clearly exposed both public and private agencies as being inadequate, and lakhs of people in at least nine districts continue to be in great distress, deprived of the most basic amenities and sometimes even of the means of survival.
In the wake of such a major disaster, the natural expectation is that all sections of society, especially those with the finances to make a difference, would step forward to contribute to the recovery and reconstruction effort. This expectation is even h igher vis-a-vis large industrialists and multinational companies (MNCs), which are increasingly prone to publicise their sense of "social responsibility". This is why some recent news reports of the response of at least one multinational company c omes as a shock, even to hardened critics accustomed to expecting the worst from such quarters.
According to a news report in a major national newspaper (The Indian Express, November 11), a major multinational company which owns majority share in the power transmission and distribution company supplying the coastal districts, has demanded fu ll compensation for its losses from the government, failing which it would triple the cost of electricity to consumers in the affected areas.
The United States-based multinational AES Corporation currently holds 51 per cent of the stock of the Central Electricity Supply Company (Cesco), which supplies power to consumers in the affected coastal districts of Orissa. The president and chief execu tive officer of AES, Dennis Bakke, came to India to review the post-cyclone situation, and apparently discovered that Cesco had sustained losses of around $60 million (Rs. 300 crores) due to the cyclone.
As a result, said Bakke, the company was asking the Government of India to bear the losses. If it refused to do so, Cesco would be forced to approach the relevant price-setting body, the Orissa Electricity Regulatory Commission, for a tariff revision whi ch he estimated could be as much as three times the present tariff. Obviously, the company felt that if the government does not share the burden, then the people would have to bear the cost.
In the wake of the cyclone, many public and private companies have declared concessions to the affected people, who are already reeling under very adverse material circumstances. Thus, the Department of Telecommunications has announced special concession s to consumers in the region. In the case of electricity, the supply of which has been so badly disrupted, it would be expected that consumers who are already suffering because of no or low provision would at least be spared the burden of higher prices. Indeed, total restoration of earlier levels of electricity supply in the affected districts is expected to take as long as six months.
However, any such concessions are obviously not under consideration by Cesco. Bakke argued that the company is under financial stress because of poor revenue collection, making it difficult, in the management's assessment, to give any relief to consumers . Perhaps more significantly, there is no legal obligation for the company to do so. The majority shareholding in Cesco was purchased from the public sector Power Grid Corporation of India Limited, which continues to hold 49 per cent of the shares.
Under the terms of the agreement of sale, there was no contractual provision about covering its losses arising from any calamity. Further, remarkably for these obsessively risk-averse multinational companies, no disaster insurance cover had been taken fo r any such eventuality; in fact, the company claims that it was in the process of taking out insurance on its infrastructure when the cyclone struck. Since it had clearly been inefficient in insuring itself in time, it would choose instead to make its cu stomers - including some of the poorest people in the world living through a major catastrophe - pay for its lapse.
Even if we set aside the inevitable knee-jerk reaction that this is likely to evoke in terms of the perfidious behaviour of MNCs, there are some important issues that arise in this context. The first issue relates to the whole pattern of privatisation of the generation, transmission and distribution of electricity that has accelerated in many States in recent times. Many observers have noted that in several States this process has been characterised by a piecemeal approach, vagueness, secrecy and lack o f transparency in the legal follow-through, and a tremendous lack of public participation and therefore of democratic accountability in the final institutional framework that has resulted.
The haste to privatise came from a perception that public sector companies were unable to deliver not only because of bureaucratic interference but also because they could not be professional in their approach in terms of efficient provision and recovery of costs. But the pattern that now seems to be followed in many cases in this sector is that private investors (usually multinational investors) will pick up all the profits (in some cases, even guaranteed profits) while the government exchequer bears a ll the risks. So taxpayers end up funding losses even though the essential idea inherent in private entrepreneurship is that profits are rewards for risk-bearing.
It is now apparent that another source of trouble in dealing with natural monopolies such as electricity provision is that when the private sector is given control then monopolistic practices are also much more likely. In such circumstances, at the very minimum, the regulatory devices need to be very carefully specified and comprehensive. But this is clearly not so yet in India.
The current experience in Orissa illustrates one way in which this can become extremely problematic. In this case, the people of the State, especially in the coastal region, seem to have lost out because of the electricity companys attempt to make them p ay for a major natural calamity which has already caused them huge dispossession. The State Government has lost out because it does not get the advantage of revenues even as it is forced to take on losses if it does not want consumers to be charged more. It is difficult to understand, therefore, why the entire process was necessary at all.
The entire privatisation process has been sold to the country on the argument that this would help the government get out of things that the private sector can do better so that the government can concentrate on what the private sector will not do. This episode shows that like so much else in the language of liberalisers and of globalisation, there are poignant gaps both in language and its interpretation in reality, which can be appropriated by those in power.
Perhaps this is why Union Power Minister P. Rangarajan Kumarama-ngalam, talking about power and the Orissa cyclone in a conference involving the Central Electricity Regulatory Commission and the United States Energy Association on November 2 (Business Line, November 3) could offer no more wisdom than that the Orissa Electricity Regulatory Commission and the privatised distribution and generation companies "will have a challenging task ahead of them in the reconstruction of the State with a human face".
That statement was made before Bakkes made his comments quoted above. If the past and present practice of post-liberalisation governments is any indication, it is possible to predict that the face of the present BJP-led Government will be much more "huma n" to multinationals than it is towards those Indians who happen to find themselves in a crisis as in Orissa.
© MACROSCAN 1999