Metering of agricultural power supply in West Bengal, India: Who gains and who loses? A. Mukherji1*, B. Das2, N. Majumdar3, N.C. Nayak4, R.R. Sethi5, B.R. Sharma6 and P.S. Banerjee7
Abstract As a part of the ongoing power sectors reforms in India, the state of West Bengal is in the process of metering agricultural electricity supply. Based on primary data, this paper presents a first cut assessment of this initiative. Results suggest that the majority of the pump owners benefit from the reforms in two ways: first by having to pay a lower electricity bill for same usage and second through increased profit margins by selling water. This is because in response to changed incentive structure for water selling, water prices rose sharply by 30-50% immediately after metering. In contrast, water buyers have lost out by having to pay higher water charges and face adverse terms of contract. Impact of metering on operation of groundwater markets is less clear; they may expand, contract or remain unchanged. Same holds true for the volume of groundwater extracted, though water use efficiency may go up. At current tariff rates, the electricity utilities are likely to earn less revenue than before. There is also no evidence that quality of electricity supply has improved following metering. These findings are context specific and holds good for West Bengal where high flat tariff had fostered competitive groundwater markets and hence can not be generalised for other Indian states.
Key words: Electricity reform, metering, groundwater, irrigation, groundwater markets, West Bengal, India
1. Introduction Indian policy discourse on the most suitable mode of agricultural electricity tariff has come full circle. Until the early 1970s, all state electricity boards (SEBs) charged their tubewell owners based on metered consumption. However, as the number of tubewells increased manifold during the 1970s and the 1980s, the SEBs found the transaction costs of metering to be prohibitively high as compared to the total revenue generated from the agricultural sector. In response, during the 1970s and 1980s most states introduced flat tariffs for agricultural electricity supply (Shah et al. 2007). The initial idea was to increase the flat tariff over time to keep it in line with the cost of generation and supply of electricity. While this solution lowered the transaction costs of bill collection, it resulted in a set of still graver problems affecting both the electricity and the groundwater sectors. For one, many state governments soon started using the electricity tariff as an electoral tool of appeasement and hence the flat tariffs remained perpetually low (Dubash & Rajan 2001). This resulted in losses to the SEBs estimated at around Rs. 270 billion per year (World Bank, 2002). Unmetered electricity supply also became a convenient garb for the SEBs to hide their inefficiencies in terms of 1
International Water Management Institute, Colombo, SRI LANKA (
[email protected]) School of Environmental Studies, Jadavpur University, Kolkata, INDIA (
[email protected]) 3 Central Groundwater Board, Eastern Region, Kolkata, INDIA (
[email protected]) 4 Central Groundwater Board, South Eastern Region, Bhubaneshwar, INDIA (
[email protected]) 5 Water Technology Centre, ICAR, Bhubaneshwar, INDIA (
[email protected]) 6 International Water Management Institute, New Delhi, INDIA (
[email protected]) 7 Research consultant, Kolkata, India (
[email protected]) * Author for correspondence is A. Mukherji. 2
transmission and distribution losses (Sant & Dixit, 1996). Over time, the SEBs came to treat their agricultural consumers as a liability. As a result, quality of power in rural areas deteriorated and some states saw ‘de-electrification’ and stagnation in agricultural electricity consumptioni. In other states, where electricity consumption in agriculture grew over time (Gujarat, Andhra Pradesh, Punjab, Haryana, Tamil Nadu), the number of hours of electricity supply came down from 18-20 hours in the 1980s to as low as 6-10 hours in the 2000s. Rationing, that too of low quality electricity, soon became the norm. There were equally serious implications for the groundwater sector. Since the marginal cost of extracting groundwater was close to zero, it provided incentive for over-pumping. In many areas this spawned active groundwater markets. These markets emerged in response to unmet demand for irrigation and the flat tariff system. However, in arid and semi-arid regions with hard rock aquifers, flat tariff was directly responsible for over-pumping and, given the low recharge potential of these aquifers, water tables declined sharply. This in turn put in jeopardy the livelihoods of millions of poor farmers dependent on groundwater irrigation (Moench, 2007). In contrast, in areas of abundant rainfall and rich alluvial aquifers with adequate recharge during the monsoon season (example West Bengal, Mukherji 2007a and 2007b); the flat tariff system did not induce over-exploitation of groundwater. Low flat tariff and the resulting electricity subsidy has also been criticised from an equity perspective. It is often alleged that much of the agricultural electricity subsidy goes to the rural rich because they own a major proportion of the water extraction mechanisms (WEMs) fitted with electric pumps (Howes & Murgai, 2003; World Bank, 2002). However, this particular critique of flat tariff is not very well founded as it disregards the existence of informal groundwater markets. Under a scenario of active groundwater markets, it is not the landholding size of the pump owners that matters, what matters more is the total command area of the tubewell including the area of the water buyers as we shall see later in the paper. Recent work has shown that informal groundwater markets are indeed an all encompassing feature in Indian agriculture and as much as 20 million ha land may be irrigated through these markets (Mukherji, 2008a). In most cases these markets also had beneficial impacts on water buyers (Shah 1993, Palmer-Jones 2001) Nevertheless, in view of several criticisms of flat tariff system, there is a growing pressure from the electricity utilities and the international donor agencies such as the World Bank and the Asian Development Bank (ADB) to revert to metering of agricultural electricity supply. This is also articulated in the Electricity Act of 2003 which states that: “No licensee shall supply electricity, after the expiry of two years from the appointed date, except through installation of a correct meter in accordance with the regulations to be made in this behalf by the Authority” (Electricity Act 2003, Article 55 (1)). The World Bank and the Asian Development Bank (ADB) have also made increase in tariff coupled with universal metering a pre-condition for financing power sector reforms in any state. However, several states such as Haryana (Dubash & Rajan, 2001) and Gujarat (Shah & Verma, 2008) have resisted any attempt to meter agricultural power even at the cost of foregoing loans from the World Bank and the ADB respectively. The reason these governments are unwilling to accept metering in the agricultural sector is the tremendous pressure from their rural vote-bank. Some of the courageous Chief Ministers (e.g. Chandrababu Naidu of Andhra Pradesh) who bought the metering argument had to pay dearly by losing political power and others were wise enough not to even consider the option. Thus, while the donor agencies and the Government of India (GOI) are pushing hard for metering, there are very few takers for universal metering. The state of West Bengal is an
exception in this regard. As per a memorandum of understanding signed between the GOI and Government of West Bengal (GoWB) in 2000, the state government has agreed to universal metering of consumers (http://powermin.nic.in). In the agricultural sector, metering has been completed in 70% of the cases, and consumers in few districts such as North 24 Parganas, Nadia and Murshidabad have started receiving bills according to meter reading. It is envisaged that by March 2009, the goal of universal metering will be achieved (personal communication with an official of West Bengal State Electricity Distribution Company Ltd. WBSEDCL). West Bengal also differs from some other major Indian states in terms of both groundwater and electricity use (Table 1). While states like Punjab and Haryana have over-exploited their groundwater resources, in West Bengal, the level of development of groundwater is only 42% of the net available resources (CGWB, 2006). West Bengal also has the lowest number of electric pump sets (only 8.5%) as against 93.5% in Andhra Pradesh and 73.3% in Punjab (GOI, 2003). While electricity is priced at very low rates or is virtually free in many states, West Bengal has the highest flat tariff rates in India. Also, unlike other states where the flat tariff has remained unchanged for a long time, in West Bengal, flat tariff was progressively increased from Rs. 1100/year in 1994 to Rs. 8800/year and Rs. 10800/year in 2007 for submersible and centrifugal pumps respectively. As a result, fiscal deficits resulting from agricultural electricity subsidy is almost non-existent in West Bengal (Briscoe, 2005). West Bengal also has a prolific groundwater market. That groundwater markets are well developed in West Bengal means that benefits of electric tubewells are shared by pump owners and their water buyers. Table 1. Comparison of groundwater and electricity scenario in West Bengal and other states Indicators (Year) Level of development of groundwater in % in 2004 Number of overexploited blocks (%) in 2004 Normal average annual rainfall in mm Nature of aquifer
Percentage of electric tubewells to total tubewells (2001) Agricultural electricity consumption (Mkwh) in (2000-01) % share of agriculture to total electricity consumption (2001-02) Flat tariff (Rs/HP/year) (2007) Electricity subsidy as % of fiscal deficit (200001) Percentage of households reporting hiring irrigation services from others (1997-98)
West Bengal 42
Punjab
Haryana
Gujarat 76
Tamil Nadu 85
Andhra Pradesh 45
145
109
0 (0)
103 (74.6)
2074
Source
55 (50.9)
31 (16.8)
142 (37.0)
219 (19.8)
CGWB 2006
780
615
1243
995
Alluvial
Alluvial
Alluvial
Hard rock
CGWB 2006 CGWB 2006
8.2
73.3
63.1
Alluvial & hard rock 54.5
5611113 Hard rock
82.5
93.5
GOI, 2003
1360
8200
5171
14507
9066
11222
Mukherjee, 2008
6.1
35.5
47.2
45.9
28.0
40.5
17602160 0.8
Free
420
850
Free
Free
Planning Commission 2002 Authors
38
78
56
42
54
Briscoe, 2005
67.2
19.3
38.5
N.A
24.6
33.8
NSSO, 1999
CGWB 2006
Source: As mentioned in the last column of the table, N.A = Not available
The two most important arguments against flat tariff, that it leads to over-exploitation of groundwater resources and it leads to fiscal deficits for the state electricity utility do not hold true in West Bengal. Metering is often espoused on the grounds that it will help improve the quality of power supply for agriculture. However, with an average daily supply of 16-20 hours, West Bengal’s farmers receive relatively good quality electricity. This is also reflected by low incidence of motor burn-outs and associated costs (Mukherji, 2007b). The fourth argument that flat tariff leads to inequity because a lion’s share of the subsidy goes to the large land owner also is not true in the context of West Bengal. This is because of existence of prolific groundwater market in the state which means that the net electricity subsidy enjoyed by a pump owner does not depend on the size of their own landholding, but rather on the total area they can irrigate, including their water buyer’s landii. From the above discussion, it would seem that none of the conditions for which metering of farm electricity is prescribed by the World Bank or others is relevant in West Bengal. Yet, it is the state of West Bengal, which has embarked upon the course of universal metering. The purpose of this paper is to understand the impact of metering on pump owners and water buyers.
2. Research questions and methodology Metering of agricultural electricity supply has been recommended on the grounds of efficiency (both financial and technical), equity and sustainability of the electricity utilities and groundwater use. On the other hand, it has been discouraged on grounds of high transaction costs and its possible negative impact on groundwater markets. In this paper, we will therefore try to answer the following research questions: 1. 2. 3. 4.
How is the GoWB proposing to minimise the transaction costs of metering? How do the consumers perceive metering? Who would gain and who would lose under the new metered tariff regimes? What would be the probable impact of metering on the functioning of groundwater markets? 5. What would be the probable impact on groundwater extraction and use?
To answer these questions, a number of methods were adopted. To understand the current dynamics of metering, the officials of the now unbundled West Bengal State Electricity Board (WBSEB) were interviewed. To understand farmers perception regarding metering, a primary questionnaire survey was administered to 155 respondents in 5 districts of West Bengal. This is one of the two surveys undertaken as a part of the Groundwater Governance in Asia project and will be referred henceforth as 1st GGA 2008 survey. For understanding the losers and gainers under metering, data from two additional surveys were used. The first is 2004 survey data collected by the first author of this paper and will be referred to as Mukherji 2004 survey. This dataset contains observations from 137 electric pump owning respondents spread across 6 districts of the state. The second data set is a qualitative survey carried out in 2008 in 17 villages spread across 3 districts of West Bengal. This will be referred to as the 2nd GGA 2008 survey. The specific purpose of this survey was to see how water prices and other terms and conditions of exchange in groundwater markets have changed in response to metering. Some of the villages were common between 1st and 2nd GGA 2008 surveys and between Mukherji 2004 survey and 2nd GGA 2008 survey. Table 2 gives the details of all three datasets.
Table 2. Details of data used Nature of data Time of survey Number of districts covered Number of villages covered Number of respondents No. of electric pump owners No. of submersible pumps No. of centrifugal pumps Number of pump owners who do not sell water Number of water sellers Number of water buyers Name of the districts covered
Data used for
Mukherji 2004 survey Quantitative Aug-Dec 2004 6 22 137 137 65 72 7
1st GGA 2008 survey
130 0 Birbhum, Bardhaman, Hugli, Murshidabad, Nadia, N. 24 Parganas Understanding the losers and gainers under metered tariff system among the electric pump owners
101 47 Bankura, Bardhaman, Hugli, Nadia, N. 24 Parganas
71 72 Murshidabad, Nadia, N 24 Parganas
Understanding perception of pump owners, water sellers and water buyers regarding metering
Understanding the losers and gainers among water buyers
Quantitative Jan-Feb 2008 5 15 155 108 86 22 8
2nd GGA 2008 survey Qualitative Mar-Apr 2008 3 17 143 71 -
3. Metering in West Bengal: The high tech way According to the WBSEB, there were 112,216 agricultural consumers of electricity in 2006. This was only 1.9% of the total consumers in the state. Together they accounted for 6.1% of power consumption and contributed 2.8% of the total electricity revenue. In order to meter these relatively small numbers of rural consumers, the GoWB adopted a high-tech way. The WBSEDCL introduced high-tech GSM cellular modules based meters in the rural areas. These meters can be remotely read from a distance of 100 feet or more, and meter readings are transferred to the regional and central commercial offices in real time. The re-designed meters are tamper resistant and any attempt to bypass or tamper with them is reported instantly to the central distribution office (see figure 1)iii. Power theft and tampering with meters has been also declared a serious offence under the ‘Indian Electricity (West Bengal Amendment) Act 2001’ whereby offenders can be imprisoned for up to 5 years or fined up to an amount of Rs. 50,000 in addition to several other punitive actions. The law was put to effect in July 2002 and from then until July 2003, 2000 raids and 73 arrests had been made (EEFI, 2002). This shows that in addition to putting technological solution to prevent power theft, the GoWB has also created an enabling legal environment for its implementation.
Figure 1. A schematic diagram of a generic IT Power Distribution System that is being used in West Bengal (adapted from Tongia, 2004) Remotely sensed meters solve many of the traditional problems with metering, viz. tampering, under-reporting and under-billing by the meter readers in collusion with the villagers, arbitrary power of the meter readers and the physical abuse that the meter readers were subject to at times at the hands of the irate villagers. Meters are now remotely read and reading is transmitted directly to the commercial office. The meter reader neither knows, nor can tamper with the meter reading. As an additional safe guard, these tamper proof meters have been installed on electric poles at a height of 10 to 15 feet and are covered with a protective iron casing. In addition, these meters are also Time of the Day (TOD) meters, implying that it records consumption of electricity at different rates based on the time of the day. TOD is a demand side management (DSM) tool, whereby a certain section of consumers are discouraged to utilize energy during peak hours when there is huge demand from other sectors. Like other tariffs, TOD tariffs are also determined by the State Electricity Regulatory Commissions (SERC) for the respective states and implemented through the SEBs. The GoWB decided to implement TOD system. For the purpose, the meters have been devised with three sectors being activated rotationally in three distinctly different time slabs for agricultural pump sets. These time slots are from 0600 hrs to 1700 hrs (Normal ‘N’ tariff @ Rs. 1.37/KwH); 1700 hrs to 2300 hrs (Peak ‘P’ tariff @ Rs. 4.75/KwH) and 2300 hrs to 0600 hrs (Off-peak ‘O’ @ Rs. 0.75/KwH). The cost of the meters is to be recovered from the consumers in eight equal instalments anytime within a period of 24 months from the date of installation of the meter. As of now, WBSEDCL has outsourced meter reading to the manufacturers of TOD meters on a contract basis for an initial two years. About 300 members from 100 Self Help Groups (SHGs) with members mostly from backward castes are now being trained by the WBSEDCL for meter
reading, billing, petty repair, collection of revenues, mobilization of prospective consumers etc. (Vidyut Baarta, 2007). While the details of such a program are not yet clear, if properly incentivised, this might work similar to the way village electricians work in rural China (Shah et al. 2004).
4. Perception of pump owners and water buyers In West Bengal, individual land holding of pump owners are small and therefore self-irrigation alone did not justify the high electricity bill under flat tariff. Hence under a high flat tariff regime as it existed before, the pump owners became pro-active water sellers. In order to keep a steady clientele, these pump owners also offered favourable terms of contract to the water buyers. Over time, as the flat tariff increased, the water charges did not increase proportionately which meant that their profit margins from water selling declined over time. For example, from 1995 to 2004, the flat tariff had increased from Rs. 1100/year to Rs. 6850/year for submersible pumps (a six fold increase), while water rates only increased from Rs. 625/acre to Rs. 1500/acre (just over two times) for summer boro paddy. Since the water buyers too realised that water sellers were under a compulsion to sell water to them, their bargaining power increased considerably and they were able to get concessions from the water sellers in terms of lower water rates, deferred payment facilities etc. Higher bargaining power of the water buyers’ vis-à-vis the water sellers is a significant fact, because usually the water buyers are small and marginal farmers belonging to lower castes while the pump owners own and operate larger land. Yet, due to the incentive structure inherent in the high flat tariff system, the socially and economically powerful water sellers were forced to negotiate favourable terms with the less powerful water buyers (Mukherji, 2007a, 2008b). It is then not surprising that most pump owners did not like the flat tariff system, and under the umbrella of All Bengal Electricity Consumers Association (ABECA) demanded metered tariff for irrigation tubewells, and successfully lobbied with the government for installation of metersiv. Given this background, 155 respondents from 5 districts in West Bengal were asked about their preference regarding the mode of tariff. The response of the pump owners and water buyers was quite predictable. Of the pump owners, 67% preferred metered tariff, while only 25.5% of the water buyers preferred the same. It is to be noted that a large number of water buyers (23.4%) were undecided about the mode of tariff they prefer, saying it was the concern of the pump owners, all they cared about was whether or not the water prices were affordable to them. Table 3 shows the preference of the respondents. Table 3. Preference of respondents on mode of electricity tariff Do you prefer metered tariff over flat tariff? Yes No Can't say Pump owner 108 73 (66.9) 27 (25.7) 8 (7.4) ‘Pure’ water buyer 47 12 (25.5) 24 (51.1) 11 (23.4) Source: 1st GGA 2008 survey, figures in parentheses are percentage to total Ownership status
Sample size
While a majority of pump owners preferred metered tariff, around 26% did not. Are the characteristics of the pump owners who prefer metered tariff significantly different from those who prefer flat tariff? The World Bank (2002) and Howes & Murgai (2003) found flat tariff to be regressive in the sense that it conferred disproportionately higher benefits to the larger land owners. If this argument is true, then we can expect that those pump owners with large farm sizes would prefer flat tariff. Table 4 shows land holding and water selling characteristics of pump owners segregated according to their preference for metered and flat tariff.
Table 4. Characteristics of pump owners according to their preferred mode of electricity tariff Pump owners who favour metering (N=73)
Pump owners who do not favor metering (N=27)
Net operational holding in acres
3.4
3.6
No
Number of plots
8.8
10.6
No
Own area irrigated (gross) in acres
7.2
8.8
No
Buyers area irrigated (gross) in acres Hours of tubewell operation for self use Hours of tubewell operation for servicing buyers
9.8
21.6
Yes
665.2
681.6
No
579.2
1005.6
Yes
Area under boro paddy (self)
2.7
2.9
No
Area under boro paddy (buyer) Age of tubewell in years
4.1
7.5
Yes
15.7
14.3
No
Characteristics
Is the difference in mean significant at 1% level of significance?
Source: 1st GGA 2008 survey
The table shows that the two categories of pump owners do not differ significantly from each other in terms of land holding, hours of irrigation for self use or own area under water intensive boro paddy. However, they differ significantly from each other in terms of the amount of buyer’s land they service, the number of hours of water that they sell to these buyers and the amount of area their water buyers devote to water intensive boro paddy. What this means is that pump owners with small land holdings are not necessarily under a disadvantage under flat tariff as is being claimed, as long as they are able to service a sizeable amount of land belonging to water buyers. There is also no significant difference in age of tubewells between the two groups, showing that the respondents who report selling a larger quantum of water were not necessarily the early entrants into the water market. Most often early entrants are the larger farmers and it is often thought that they capture a larger chunk of the water market (Dubash 2002).
5. Who gains and who loses? In this section, we will two sets of data (Mukherji 2004 survey and 2nd GGA 2008 survey) to delineate the losers and gainers among pump owners and water buyers under the new metering system. We have defined losers and gainers in a rather narrow sense. A pump owner is defined to lose out under the new meter tariff system if s/he has to pay a higher electricity bill for the same number of hours of operation than s/he was paying under flat tariff. A water buyer is defined to be a loser, if s/he has to pay higher water charges for using same amount of water or receives a poorer quality of service or adverse terms of contract, while the electricity utility is deemed to be a loser if the amount of revenue generated from the same number of agricultural consumers under metered tariff is lower than the revenue collected previously under the flat tariff regime.
There could be other ways of defining losers and gainers. For example, a pump owner could be deemed to be a winner if his/her crop yields increased due to better water management after shifting to metered tariff even if s/he had to pay a higher amount of electricity bill. Similarly, if s/he was able to irrigate a larger amount of land with the same amount of water, s/he could be deemed to have benefitted under metering. If quality of electricity supply improved drastically as a result of metering and this in turn led to savings on part of the pump owner, s/he could be deemed to be a winner. The same holds true for the water buyers. For the electricity utilities, if the T&D losses and theft declined as a result of metering, they could be deemed to have benefitted from metering. While a broader definition of winners and losers is desirable, data constraints prevent us from adopting such definitions herev. Some reflections on other definitions and likely adaptation of farmers are given later.
5.1 The pump owners Mukherji 2004 survey contains data for hours of operation for 137 tubewells. Hours of operation in a year was calculated by multiplying the hours of operation in a day with number of days in a particular season of the year when the pumps were reported to be operational. This was also triangulated with the cropping pattern and water use data. All these tubewells were subject to flat tariff which was Rs. 8800/year and Rs. 10800/year in 2006-07. As has been already mentioned, the GoWB has introduced a TOD system for metered tariff with three different tariff rates (Section 3). On an average, a 5 HP pump consumes 3.73 unit of electricity per hour of operation (@0.746 KWh/HP). Given the different tariff rates, the average electricity bill works out to Rs. 5.54/hour. To this, meter rent @ Rs. 22/month per connection has been added. Based on the number of hours of operation of a pump in a day and the type of crop grownvi and assuming that the pump owners would operate their pumps for the same number of hours under metered tariff as they did under flat tariff, metered bills for our sample tubewells were calculated. Under the current meter tariff rates, it was found that out of 65 submersible pump owners, 41 (or 63.1%) would pay a lower electricity bill under metered tariffs than they were paying under the flat tariff. This means that according to our definition, 63.1% of submersible owners in our sample will be gainers under the new metered tariff, while 36.9% of the respondents would lose out. In case of centrifugal pump owners, the figures would be 73.6% winners as against 26.4% losers. Figures 2a and 2b show the gainers and losers for submersible and centrifugal pumps respectively.
Electricity bill (Rs/year)
25000.0
Gainers 63.1%
20000.0
Losers 36.9%
15000.0 10000.0 5000.0 0.0 1
4
7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 Number of submersible tubewells Predicted bill under metered tariff
Electricity bill under flat tariff in 2006-07
Figure 2a. Predicted electricity bill under current metered tariff rates versus electricity bill under flat tariff for submersible pump owners in West Bengal (N=65), Source: Mukherji 2004 survey
Electricity bill (Rs/year)
25000.0 20000.0
Gainers 73.6%
Losers 26.4%
15000.0 10000.0 5000.0 0.0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 Number of shallow tubewells Predicted electricity bill under metered tariff
Electricity bill under flat tariff in 2006-07
Figure 2b. Predicted electricity bill under current metered tariff rates versus electricity bill under flat tariff for centrifugal pump owners in West Bengal (N=72), Source: Mukherji 2004 survey Since differential tariff rates are applicable for different times of the day, it is not possible to arrive at a single break-even point where total electricity bill under metered tariff will be equal to the flat tariff. However, our data shows that anyone operating their submersible pumps for more than 2700 hours in a year will certainly have to pay higher electricity bill under metered tariff regime. This will be 2200 hours in a year for centrifugal pumps. Under the existing tariff rates, the average metered tariff works out to be Rs. 1.48/unit. However, cost of power supply for the WBSEB was Rs. 3.77/unit in 2001-02 (Planning Commission,
2002). It is to be expected that the West Bengal State Electricity Regulatory Commission (WBSERC) will keep revising its tariff rates upwards and would try to bridge the gap between cost of production and supply of electricity. Quite predictably, as the tariff rate goes up, the number of losers according to our definition will increase while the cut-off hour point beyond which operation of tubewells will prove to be more costly will decline. Since the GoWB has introduced TOD system, it is assumed that this system will continue in years to come. Table 5 shows how tariff rates may be increased in the future in order to meet the cost of generation, while table 6 shows how the percentage of gainers would decline as tariff rates goes up. Table 5. Some changes that may be made to the TOD tariff in the future Time of the day 11 pm – 6 am 6 am – 5 pm 5 pm – 11 pm Average
Existing tariff rates (Rs/unit) 0.75 1.37 4.75 1.49
Enhanced tariff plan A 1.0 2.0 5.0 2.46
Enhanced tariff plan B 1.5 2.5 5.5 2.95
Enhanced tariff plan C 2.0 3.0 6.0 3.46
Enhanced tariff plan D 2.5 3.5 6.5 3.95
Table 6. Change in number of gainers and losers and the cut off point beyond which pumping will become costlier under alternative metered tariff rates Tariff rates
Existing (@ 1.49/unit) Plan A (@ 2.46/unit) Plan B (@ 2.95/unit) Plan C (@ 3.46/unit) Plan D (3.95/unit)
Submersible pump owners (N= 65) % gainers % losers Maximum cut-off point in hours 63.1 36.9 2700
Centrifugal pump owners (N= 72) % gainers % losers Maximum cut-off point in hours 73.6 26.4 2200
29.2
70.8
1900
50.0
50.0
1800
18.5
81.5
1530
34.7
65.3
1345
7.7
92.3
1250
23.6
76.4
1075
4.6
95.4
1030
19.4
80.6
930
Source: Authors calculations based on Mukherji 2004 survey, for details on different tariff plans see Table 5.
5.2 Water buyers Water buyers would lose out under the new metered tariff regimes if: (i) price at which they buy water goes up; (ii) if water sellers show unwillingness to sell water and (iii) if other terms and conditions of water sale becomes unattractive for the buyers. The 2nd GGA 2008 survey was specifically aimed at capturing village level changes in terms and conditions of water selling after metering of agricultural tubewells. It was found that in all the villages without any exception, water rates for all crops have increased after the introduction of the metered tariff. In West Bengal, usually three types of modes of payment are found, these are (i) crop and season wise cash contract (Rs/bigha/crop); contracts for aman and boro paddy are of this kind; (ii) hourly rate (Rs/hour) is common for all other crops and (iii) One time crop and area specific contracts (Rs/bigha/irrigation) usually found in case of crops with low water requirement such as mustard, wheat and sesame. Table 7 shows the increase in water rates for different types of crops after the introduction of metered tariff.
Table 7. Change in water rates after metering Crop
Unit
Aman paddy Boro paddy Any crop Wheat, Mustard, Sesame
Rs/bigha
Water rates under flat rate tariff in 2006-07 Min Max Av. 350 800 500
Water rates under metered tariff in 2007-08 Min Max Av. 500 1000 660
% increase 32.0
Rs/bigha
600
1200
850
800
1500
1100
29.4
Rs/hour
15
40
25.8
25
50
37.0
43.4
Rs/irrigation/bigha
50
200
97.6
100
300
150.0
53.7
Source: 2nd GGA 2008 survey Table 7 shows that water rates for all crops have gone up by 30 to over 50% in just a year in response to metering. This increase in water price is not in anticipation of higher electricity bill as we have shown that under the current tariff rates, 63% of submersible owners and 76% of the centrifugal pump owners would have to pay a lower electricity bill than before. In some villages, the pump owners also acknowledged that they had received a lower electricity bill under metered tariff than they did under flat tariff. According to the water buyers, the reason for increasing water charges was the changed incentive structure for the pump owners. Unlike high flat tariff, under metered tariff, they are no longer under a compulsion to sell and as a consequence the bargaining power of the water buyers has declined. A water buyer in a village in Murshidabad district captured this issue of changed incentive structure when he said: “Till last year, my water seller would come to my house before the boro season just to make sure that I would buy water from him for the season. I usually paid at the end of the season. This year, he increased the water charges from Rs. 800/bigha to Rs. 1200/bigha. I objected. He told me that I can buy water from him if I want to; otherwise I can go somewhere else because now that he has a meter, he will not bother much about selling water. He also asked for an advance of Rs. 300 saying he now needs to pay his electricity bill every month”. (English translation of an of an interview in Bangla with a water buyer in a village in Murshidabad on 4th April 2008, 2nd GGA 2008 survey) Based on our discussions with the water sellers and buyers, we also found that in all villages, the water sellers were less pro-active in selling water under a metered tariff than they were before. In 10 out of the 17 surveyed villages we found evidence that the water sellers were more interested in leasing in land than selling water to their erstwhile water buyers. A part of the reason is certainly the buoyant paddy prices since 2006, but the main reason is the shift to metered tariff whereby the previous compulsion for selling water just to recover the electricity bill has been removed. Our interviews with the water buyers also revealed that in many villages, the water sellers were asking for advance payments – a concept unheard of just a year ago.
5.3 Groundwater markets There were 6.1 million farming households in West Bengal, of which only 1.1 million households owned water extraction mechanisms, while another 3.1 million households reported hiring irrigation services from their neighbours (NSSO, 1999). There is evidence to show that recent expansion in groundwater markets has been a direct result of the steep rise in flat rate tariffs. Earlier when the flat tariff was low (in the early 1990s), pump owners were more interested in
leasing in land from the prospective water buyers than selling water to them (Webster, 1999). However, work by Mukherji (2007 a, b and 2008b) shows that in recent years, high flat tariffs gave a positive incentive to the pump owners to sell water and in the process recover their electricity bill and also earn additional profits. What would happen to the size and intensity of groundwater market transactions as result of metering of electricity supply? Earlier, Shah (1993) had found that with switchover from metered tariffs to flat tariffs in Gujarat in 1986, water rates were lowered and groundwater markets expanded. In West Bengal, whether water markets would expand, shrink or remain unchanged is an empirical question that can only be answered definitively once metered tariffs are introduced in all places in the state and pumping and water selling behaviour of the pump owners are studied and compared with their behaviour under earlier flat tariff system. At this point, in the absence of such data, we can only hypothesize on the impact of metering on the size of the water markets. Given that the incentive to sell water to others as was present under the flat tariff system is missing under the metered tariff system, those pump owners who were not overly motivated by profits, yet were under compulsion to sell water just to recover the electricity bill, would possibly exit from the market. Under this scenario, water markets would shrink in size. From our 2nd GGA 2008 survey, we found that in 4 out of 17 villages, area under boro paddy had declined in 200708 in response to hike in water rates for boro paddy. This is in spite of the fact that paddy prices were at their historical high during this year. In these villages, the depth of water market transactions would have certainly gone down. Similarly, we also found that 10 out of 17 villages, pump owners had shown greater interest in leasing in land from their erstwhile water buyers instead of selling water to them. In these villages too, both breadth and depth of water markets is likely to have gone down. On the other hand, pump owners who were motivated by the profit they made from selling water, would continue to do so and get a higher profit margin due to lower cost of pumping and high water rates under metered tariff as we saw in the previous section. If pump owners are driven predominantly by the profit motive, water markets might even expand in the long run or at least remain constant. Based on the rather simple assumption that pump owners would try to recover the entire electricity bill (including for their own consumption) from the water buyers, three hypothetical cases out of several possible cases are shown (Table 8). In the first case, the pump owner reduces the hours of water sold to others, in the second, he sells the same number of hours as before and in the third, he expands his hours of water selling. On an average, under the metered tariff, cost of pumping for an hour is roughly Rs 6/hour, while the price at which water is being sold works out to be Rs. 18/hour (1st GGA 2008 survey). Note that the profit motive does not come into play; here the intention of the pump owners is only to break-even by recovering the electricity bill from their customers. These calculations would obviously change once profit motive is taken into consideration or if it is hypothesized that a pump owners pumping behaviour would change in response to meter (see next section). Table 8. Impact of metering on the size of groundwater markets Cases
Hours of operation of a submersible pump under flat rate tariff For self For selling Total use to others
Electricity bill under current metered tariff of Rs 6/hour
Case 1
800
700
1500
9000
Number of hours of water to be sold to recover the meter bill @ Rs 18/hour 500
Case 2
1200
600
1800
10800
600
Expansion, contraction or no change in hours of water sold after metering Contraction by 200 hours No change in
Cases
Case 3
Hours of operation of a submersible pump under flat rate tariff For self For selling Total use to others
1500
600
2100
Electricity bill under current metered tariff of Rs 6/hour
12600
Number of hours of water to be sold to recover the meter bill @ Rs 18/hour 700
Expansion, contraction or no change in hours of water sold after metering hours sold Expansion by 100 hours
5.4 Groundwater use One of the most important assumptions behind marginal cost pricing of water or electricity is that it would reflect the scarcity value of water and therefore increase water use efficiency. Evidence on this however is at best sketchy. The World Bank (2002) study simulated various scenarios and concluded that with metering and subsequent improvement in quality of electricity supply, the current tendency of the farmers to over-use groundwater would reduce. Venot & Molle (2008) in their study in Jordan, did not find any evidence of declining groundwater use in response to marginal cost pricing of water. Kishore& Verma (2004) did not find any difference in pumping behaviour between farmers subjected to meter tariff and flat tariff in Gujarat. Thus, whether or not metering of pumps in West Bengal would lead to reduction in pumping or increase in water use efficiency is an empirical question and can be answered only when we have comparative data in the future. However, data from our 2nd GGA 2008 survey found that there has been no change in gross irrigated area in any of the villages, though in 4 villages out of 17, area under water intensive summer boro paddy has declined in response. In these villages, it is likely that groundwater extraction would have reduced, but not so in other villages. However, we did find evidence that pump owners are trying to minimise seepage losses by using rubber pipes (in 10 out of 17 villages, rubber pipes were used for the first time after metering), maintaining their unlined channels better and in some isolated cases, also by constructing underground channels. Water use efficiency therefore might go up, but whether or not it will lead to conservation of groundwater is a tricky question. There is also no evidence to show that quality of electricity supply, which was relatively satisfactory in the past, has improved in response to metering. Improvement in quality of electricity supply is often projected to be the most important positive outcome of metering (World Bank, 2002).
5.5 Electricity Utilities The MoU signed between the GoWB and GOI in 2001 states that “the reform measures are being undertaken with the objective of achieving break-even in the SEB by March, 2003 and getting positive returns thereafter” (http://powermin.nic.in). According to a statement made to the West Bengal Assembly in 2006, reform measures have led to a turn around in the financial performance of the SEB from a loss of Rs. 520 crores in 2001-02 to a commercial profit of Rs. 81 crore in 2005-06 (http://siteresources.worldbank.org). Note that from 2001 to 2006, the flat tariff for agriculture increased from Rs. 3350/year to Rs. 8950/year for centrifugal pumps and Rs. 5031/year to Rs. 10930/year for submersible pumps. This increase contributed in part to higher revenues for the SEB. According the WBSEB, there were 112,216 electrified tubewells in the state. Roughly, 20% of these were submersible pumps and the rest were centrifugal pumps (personal communication with an official of WBSEDCL). Based on the current TOD rates and the fact that a submersible tubewell on an average operates for 2,160 hours in a year and centrifugal tubewell for 1,670 hours in a year (Mukherji, 2007a)vii, it was calculated that on an average, the WBSEB would be losing
Rs. 1,530/year and Rs. 1,572/year per submersible and centrifugal pump respectively. This will translate to a loss in revenue of Rs. 175 million/ year from agricultural pump sets. If however, the WBSEB progressively increases its tariff as proposed in table 5, it will earn additional revenues from the agricultural sector. Table 9 shows the revenue inflows from agriculture under current tariff and under several scenarios of future tariff hike. However, this calculation does not take into account the fact that in response to metering pumping behaviour of the pump owners might change, they can either increase or decrease pumping in response. Table 9. Loss or gain in revenue from the agricultural sector under metered tariff as compared to flat tariff under present tariff rates and future tariff rates. Tariff rates
Loss (-) or gain (+) in Rs. per submersible tubewell/year
Loss (-) or gain (+) in Rs. per centrifugal tubewell/year
Overall loss (-) or gain (+) in revenue for the WBSEB in million Rs/year* -175.4
Existing (@ -1530 -1572 1.49/unit) Plan A (@ +1710 +932 +122.1 2.46/unit) Plan B (@ +5739 +4047 +492.1 2.95/unit) Plan C (@ +9767 +7161 +862.1 3.46/unit) Plan D +13795 +10276 +1232.1 (3.95/unit) *This assumes that there are 112216 electric tubewells in the state of which 20% are fitted with submersible pumps and 80% with centrifugal pumps. Source: Mukherji 2004 survey for average hours of operation of tubewell data. Also see Table 5 for details of each of the tariff plans.
6. Conclusion and policy implications While universal metering is often thought to be a panacea of all ills in the electricity and groundwater sector, high transaction costs often impede such initiative. The initiative of GoWB in this regard is quite innovative and worth emulating elsewhere. In terms of design of the programme, the GoWB has adopted a hi-tech approach aimed at reducing the transaction costs of metering. The introduction of GSM based electronic and remotely read meters with tamper proof properties takes care of many of the conventional shortcomings of metering in rural area. Metering is often advocated on the grounds that it would be beneficial to farmers and to the state electricity utilities. Our study found that metering has indeed been beneficial to the pump owners. Under current tariff rates and assuming unchanged usage pattern, the majority of the pump owners in West Bengal would have lower electricity bills than under the flat tariff regime. At the same time, they have been able to increase the rates at which they sell water to others by 30-50%. Electric pump owners number just above 100,000 and hence constitute less than 2 percent of the agricultural households in the state. They also happen to be larger and wealthier farmers (Mukherji, 2007a). Water buyers have lost out under the new metered tariff system in several ways. First, they now have to pay a higher price for buying water. Second, their bargaining power vis-à-vis the water sellers has declined considerably and as a result they are now been forced to buy water at disadvantageous terms and conditions. This has happened because the pump owners no longer need to sell water to cover high and fixed electricity costs. This unwillingness of the pump owners to sell water is manifested in their eagerness to lease in land from the erstwhile water buyers. If this occurs, it will make the current water buyers increasingly dependent on the market
for procuring food grains for self-consumption or push them out of farming. Water buyers constitute 50% of the rural farming households (NSSO, 1999) and often belong to the poor and marginal sections of the society. Under the existing electricity tariffs, even the state electricity utilities are likely to lose out in terms of revenues. This therefore puts in to question the claim that metering by itself can improve the incomes of the SEB. Another justification for metering, that is, it will lead to better energy auditing can be effectively taken care of through metering at the transformer level without metering individual agricultural consumer and this could have been done at a lower cost. That the largest section of the rural community, namely, the water buyers has been negatively affected by metering also calls into question the assertion that metering will improve the lives of India’s farmers (World Bank, 2002). Marginal cost pricing through metering might lead to improved water use efficiency and this will be a positive outcome. However, whether or not it will lead to water savings is a debatable issue. More debatable is whether or not conservation of groundwater should be the prime policy objective in a state that is flush with groundwater and steeped with poverty and where groundwater may be used for poverty alleviation (Kahnert & Levine, 1993). Metering and therefore proper auditing and accounting of energy supply is also thought to ultimately improve the quality of electricity. However, as mentioned earlier, farmers in West Bengal receive relatively high quality electricity supply and during our survey, we did not find any evidence that quality has further improved after metering. Given that the GoWB has already invested millions of rupees in metering and that the lending agencies also insist on it as does India’s national policies, it is unlikely that metering will be revoked. Under such a scenario, what are the policy options that might soften the blow to the poorer water buyers? The GoWB needs to take steps to accelerate the pace of electrification of tubewells in the state. This will enhance competition in the water markets and in response, water prices might decline. On the positive side, metering of electricity would encourage many small farmers to invest in tubewells who earlier might have been reluctant to invest fearing that they would not be able to recover the high flat tariff through selling water. Under metering, they would have to pay for only as much as they consume. However, as per the current government policies, getting a new electricity connection for tubewell is a cumbersome process involving permission from the State Water Investigation Directorate (SWID) (Mukherji, 2006). Besides, with phasing out of all capital subsidies since the late 1990s, construction of electric tubewells has become a costly affair requiring anything from Rs. 50,000 to Rs. 150,000 per tubewell. The GoWB should relax the stringent SWID regulations and also provide capital subsidy to the small and marginal farmers for construction of tubewells. This will reduce their dependence on water markets for accessing irrigation. The panchayats (local governments) can play an important role in regulating water prices in the market. Earlier, the very incentive structure inherent in the high flat tariff induced competition in the market and monopoly tendency among the water sellers was kept under check (Mukherji 2007a). However, under metered tariff and changed incentive structure, pump owners would try to increase their profit margins by increasing the water price as we saw earlier. In view of this, the panchayats can act as regulators by setting the maximum price at which a pump owner can sell water in the village. In some villages in West Bengal, panchayats already play a regulatory role (see Rawal, 2002; Mukherji 2007c) but this needs to be carefully replicated at a larger scale keeping in mind issues of corruption and local elite capture.
This paper is the first of its kind that examines the impact of metering on agricultural groundwater users. In doing so, it contributes in two important ways. First, it questions the orthodoxy that universal metering is impossible in India because of high transaction costs involved (Shah et al. 2007). This paper shows that modern IT technologies offers new possibilities for overcoming old problems and the GoWB has indeed adopted such technology to great success. Second, it also questions another orthodoxy that now prevails among the donor agencies and researchers, viz. that metering will ‘improve the lives of India’s farmers’ (World Bank, 2002, Ruet, 2005). This paper shows that it need not necessarily be so in a region where farm sizes are extremely small, groundwater resources are abundant and competitive groundwater markets which benefit the small and marginal farmers have developed in response to high flat rate tariffs. All these conditions prevail in West Bengal and it is here that metering, by changing the dynamics of the competitive groundwater markets has benefited electric pump owners at the cost of majority of water buyers. However, this paper in no way generalises its finding by claiming that metering will have similar negative impacts elsewhere. Indeed, in regions of large land holding, over-exploited groundwater resources, absent groundwater markets, free or low flat tariff regimes (e.g. Punjab, Haryana), metering might as well be the best policy option. The findings of this study thus are context specific and in itself is an indicator of how generic policy prescriptions such as universal metering are not always likely to produce desirable outcomes unless they are put into the right context.
Acknowledgements The authors are grateful to the Challenge Program on Water and Food (www.waterandfood.org) for funding the Groundwater Governance in Asia Project (www.waterforfood.org/gga/). This paper is an output from the project.
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i
For example, number of electric pumps in Bihar remained stagnant at around 0.18 million from 1976-77 to 1997-98 (Mukherji, 2008a) as did the power consumption in agriculture (Mukherjee, 2008). ii So, it is perfectly possible that a farmer with 0.5 acres of land can service up to 15 acres of land under his tubewell, while a comparatively large landowner owning 5 acres of land in the absence of any water buyers would service only his own land and both would have to pay same tariff. iii For this initiative, the WBSEDCL received the ‘PCQuest Best IT Implementation Award’ in 2007 in the category of most innovative project (http://www.cybermedia.co.in/press/pressrelease50.html) iv However, two other demands of ABECA, viz. free electricity for all farmers owning less than 3 acres land and metered tariff of Re. 0.50/unit has not been implemented v Installation of meters had started in 2006-07 and it was only in the 2007-08 that the pump owners in districts of Nadia, N. 24 Parganas and some blocks of Murshidabad district started receiving bills based on metered consumption. Since we do not yet have data to measure changes in farmers’ crop yields and incomes in response to metering, hence we have adopted a narrower definition than what would have been ideal. vi Here’s an example of the way metered tariff was calculated. Assuming that a pump owner operated his tubewell for 24 hours during the boro season, his per day electricity consumption was Rs. 132.97 (Rs. 19.58 @ Rs. 0.75/unit for 7 hours, plus Rs. 56.51 @ Rs. 1.37/unit for 11 hours plus Rs. 106.87 @ Rs. 4.75/unit for 6 hours). If however, he operated his pump only for 18 hours in a day and grew paddy, it was assumed he did not operate the pump during the peak time from 5 pm to 11 pm and his electricity bill was calculated based on normal and off-peak tariff. If however, he operated his pump for say, 15 hours in a day and grew potato instead of boro paddy, it was assumed that he used all 11 hours of the normal tariff, plus
two hours of off peak tariff (from 4 am to 6 am when the day starts breaking) and two hours of peak time (from 5 pm to 7 pm when there is daylight). vii While calculating the electricity bill under the current TOD rates, it was assumed out of every 100 hours of operation, 57 hours are during the night time off peak rates of Rs. 0.75/unit, 40 hours are during the normal daytime tariff of Rs. 1.37/unit and 3 hours are during the evening peak tariff of Rs. 4.75/unit. This is based on detailed analysis of around 20 electricity bills under meter tariff from April 2007 to March 2008.
