Gujarat's Power Sector Transformation: A Model of Reforms and Success

In the early 2000s, Gujarat’s power sector was in disarray, much like the rest of the country. Both rural and urban areas struggled with an inconsistent electricity supply. However, within a decade, Gujarat successfully provided round-the-clock three-phase power to its 18,000 villages and 9,700 hamlets.

Opposition leaders have repeatedly brought up his ‘future’ as PM in recent months as Modi inches closer to the age of 75. (Photo: PTI)

Over the past two decades, Gujarat’s remarkable transformation in the power sector—initially led by Narendra Modi and later by successive Chief Ministers—has become a benchmark for power sector reforms in India. Today, the state enjoys a surplus of electricity, low tariffs, and an uninterrupted power supply.

What truly led to the turnaround?

When Narendra Damodardas Modi assumed office as Gujarat's Chief Minister in October 2001, the state's power sector was in crisis. The Gujarat State Electricity Board (GSEB) had reported a loss of ₹2,246 crore for 2000–01, against revenues of ₹6,280 crore. Interest costs alone amounted to ₹1,227 crore, while transmission and distribution (T&D) losses stood at a staggering 35.27%, leading to frequent load shedding. The GSEB lacked funds to expand its generation capacity and struggled to attract private investments.

Addressing the power sector's inefficiencies became one of Modi’s top priorities. His first step was selecting a capable bureaucrat to lead the turnaround. He appointed Manjula Subramaniam, a Gujarat cadre officer with a distinguished record, including her tenure as Joint Secretary in the Prime Minister’s Office from 1993 to 1998, where she played a crucial role in economic liberalization. She was made Chairperson of GSEB and Principal Secretary, Energy and Power.

Subramaniam quickly recognized that GSEB was too unwieldy to manage efficiently but opted for a phased approach rather than immediate restructuring. She initially focused on stabilizing finances and boosting employee morale. She discovered that GSEB had taken loans at exorbitant interest rates of 18% or more and initiated a debt restructuring process, persuading banks and financial institutions to lower rates, saving ₹500 crore in 2002–03.

Her next move was more radical. Reviewing power purchase agreements (PPAs) with private suppliers, she found inflated heat rates—an efficiency metric—causing excessive charges. Despite initial resistance from private players, a government committee engaged in tough negotiations for over 18 months, ultimately securing lower tariffs. This resulted in savings of ₹675 crore in 2002–03 and ₹1,000 crore in 2003–04.

Meanwhile, Modi’s administration tackled power theft, which ranged from 20% in urban areas to a staggering 70% in rural regions. A new law was passed to curb electricity theft, and five dedicated police stations were established to handle such cases. Strict actions, including disconnections, were taken against defaulters. Unmetered power supply in rural areas was phased out, and GSEB secured funding from the Asian Development Bank to install meters.

Recognizing that employees were anxious about reforms and potential job losses, Subramaniam hired a consultant to address their concerns. By mid-2002, based on the consultant's recommendations, GSEB launched extensive employee engagement initiatives. Training programs were introduced to reassure workers that while roles might be reallocated, no one would be laid off. Senior officials held town hall meetings to discuss the board’s financial status and address staff queries. An internal newsletter was also introduced to enhance communication.

With employees now onboard, the next step was structural reform. In May 2003, the Gujarat government enacted the Gujarat Electricity Industry (Reform and Reorganisation) Act, which split GSEB into a holding company, a power generation company, a transmission company, and four distribution companies. This restructuring improved management efficiency and operational effectiveness.

Another key initiative was the Jyoti Gram Yojana, introduced in 2003, which separated rural power supply into two feeder lines—one for agricultural use and another for households and other needs. Previously, subsidized electricity meant for agriculture was often misused for household consumption, causing massive financial losses. A study by the Indian Institute of Management, Ahmedabad, estimated that this project saved the state ₹23,000 crore in capital expenditure, equivalent to around 5,000 megawatts (MW) of capacity.

The Modi government also ensured the state electricity regulator remained independent of political influence—unlike in many other states—allowing annual tariff revisions to bridge the gap between power supply costs and consumer payments.

The transformation was dramatic. By 2005–06, GSEB posted its first profit of ₹203 crore after tax, rising to ₹533 crore by 2010–11. T&D losses declined to 20.13%, and tariff collection efficiency neared 100%. Private sector investments, once scarce, surged. Of the 16,945 MW of new power generation capacity in Gujarat, nearly one-third—6,864 MW—was driven by private players. "Abundant power is now a major USP of our state," remarked Minister Patel.

Challenges remain. T&D losses, though reduced, are still higher than in southern states like Andhra Pradesh, Karnataka, and Tamil Nadu. Power costs in Gujarat have traditionally been high and continue to be so.

Yet, the turnaround is remarkable. A state once plagued by power shortages now boasts a surplus of 2,114 MW and a robust energy sector.

Jyoti Gram Yojna – the flagship program of the Gujarat government

One of the key reforms introduced was the separation of the feeder line supplying power to rural areas into two distinct lines. One catered to agricultural needs, while the other was dedicated to non-agricultural household usage. This was part of the Jyoti Gram Yojna, a scheme announced by Modi in 2003 to ensure round-the-clock power supply to villages. The success of this initiative was so significant that, after Modi became Prime Minister, it was expanded nationally under the name "Deen Dayal Upadhyaya Gram Jyoti Yojana."

Launched in September 2003, the Jyoti Gram Yojana (JGY) aimed to provide continuous, three-phase, high-quality power to both domestic and commercial users in villages and their hamlets.

As part of the scheme, a new rural distribution network was developed, comprising 78,454 km of power lines, 2,257 JGY feeders, 18,724 new transformer centers, and 4,530 specially designed transformers. JGY also helped curb power theft and losses, relieving distribution companies from significant financial strain. As a result, the financial health of these Discoms improved year by year.

Additionally, in May 2003, the Gujarat government passed the Gujarat Electricity Industry (Reform and Reorganisation) Act, which split the GSEB into a holding company, a power generation company, a power transmission company, and four distribution companies, enhancing management and operational efficiency.

Ahead of its time, the Modi government also established a state electricity regulator, the first of its kind in the country. This regulator was made independent of political influences, granting it the authority to revise power tariffs annually, ensuring that there were no losses to the state exchequer.

A less obvious, but highly effective reform, was the restoration of employee confidence. Manjula Subramaniam was assigned to address concerns from employees who feared job losses due to the reforms. The GSEB reached out to staff and implemented training programs at all levels to redeploy them. The government guaranteed that no one would be laid off, and within weeks, employees became more engaged in the reforms, even contributing to their implementation.

The multiple reforms spearheaded by the Modi Government to restructure the state's power sector yielded remarkable results. Losses were eliminated, and efficient electricity usage without wastage became the norm. The upgrades and clear policies also helped boost investor confidence, attracting private capital for power generation.

In just three years, the extensive power sector reforms transformed Gujarat into a power-surplus state by 2003. The GSEB, now rebranded as Gujarat Urja Vikas Nigam Ltd (GUVNL), had reported a loss of Rs. 2,246 crores in 2000-01, with revenues of Rs. 6,280 crores. By 2019, GUVNL posted a profit of Rs. 928 crore on total revenue of Rs. 50,959 crore.

A closer look at the critical reforms in Gujarat, especially in capacity addition and restructuring power distribution companies, reveals how visionary leadership turned a power deficit state into a power surplus one within a decade.

Several states have since attempted to replicate Gujarat's success with similar reforms to improve power generation and Discom efficiency. However, not all states have achieved comparable success. When Modi became Prime Minister in 2014, he introduced comprehensive reforms to restructure the power sector across India. As electricity is a concurrent subject, states share equal responsibility for implementing these reforms, which the central government has incentivized. While there has been some improvement in the country's power sector, much remains to be done.

Conclusion

The power sector transformation in Gujarat serves as a landmark example of effective governance, visionary leadership, and strategic reforms. From a state struggling with power shortages to becoming a model of energy surplus, Gujarat’s success highlights the importance of addressing inefficiencies, embracing structural changes, and ensuring stakeholder involvement. This comprehensive approach has not only reshaped the state's power infrastructure but also laid a strong foundation for future growth in the energy sector.

Source link: OpIndia, Businessline