Mukherji 2009 Metering Electricity Supply

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    Metering of agricultural power supply in West Bengal, India: Who gains and

    who loses?

    A. Mukherji a,, B. Das b, N. Majumdar c, N.C. Nayak d, R.R. Sethi e, B.R. Sharma f

    a International Water Management Institute, Colombo, Sri Lankab School of Environmental Studies, Jadavpur University, Kolkata, Indiac Central Groundwater Board, Eastern Region, Kolkata, Indiad Central Groundwater Board, South Eastern Region, Bhubaneshwar, Indiae Water Technology Centre, ICAR, Bhubaneshwar, Indiaf International Water Management Institute, New Delhi, India

    a r t i c l e i n f o

    Article history:

    Received 11 February 2009

    Accepted 11 August 2009Available online 6 October 2009

    Keywords:

    Electricity reform

    Ground water

    India

    a b s t r a c t

    As a part of the ongoing power sector reforms in India, the state of West Bengal is in the process of

    metering agricultural electricity supply. 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 the changed incentive structure, water prices rose sharply

    by 3050% 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 and volume of groundwater extracted is less clear; they may expand, contract or remain

    unchanged, though water use efficiency is likely to go up. At current tariff rates, the electricity utilities

    are likely to earn less revenue than before. These findings are context specific and hold good for West

    Bengal where high flat tariff had fostered competitive groundwater markets and hence cannot be

    generalised for other Indian states.

    & 2009 Elsevier Ltd. All rights reserved.

    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 prohibi-

    tively 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 tariffover 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 and 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 transmission and distribution losses (Sant and 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 consumption.1 In other states, where

    electricity consumption in agriculture grew over time (Gujarat,

    Andhra Pradesh, Punjab, Haryana, Tamil Nadu), the number ofhours of electricity supply came down from 18 to 20h in the 1980s

    to as low as 6 to 10h 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

    ARTICLE IN PRESS

    Contents lists available at ScienceDirect

    journal homepage: www.elsevier.com/locate/enpol

    Energy Policy

    0301-4215/$- see front matter & 2009 Elsevier Ltd. All rights reserved.

    doi:10.1016/j.enpol.2009.08.051

    Corresponding author.

    E-mail addresses: [email protected] (A. Mukherji), [email protected]

    (B. Das), [email protected] (N. Majumdar), [email protected]

    (N.C. Nayak), [email protected] (R.R. Sethi), [email protected] (B.R. Sharma).

    1 For example, number of electric pumps in Bihar remained stagnant at around

    0.18 million from 19761977 to 19971998 (Mukherji, 2008a) as did the power

    consumption in agriculture (Mukherjee, 2008).

    Energy Policy 37 (2009) 55305539

    http://-/?-http://www.elsevier.com/locate/enpolhttp://dx.doi.org/10.1016/j.enpol.2009.08.051mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://dx.doi.org/10.1016/j.enpol.2009.08.051http://www.elsevier.com/locate/enpolhttp://-/?-
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    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 (e.g. West Bengal, Mukherji, 2007a, 2007b);the flat tariff system did not induce over-exploitation of ground-

    water.

    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 and

    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 encompass-

    ing 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 the 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 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 and Rajan, 2001) and Gujarat (Shah and 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 losingpolitical power and others were wise enough not to even consider

    the option. Electricity reforms in India are first and foremost a

    political issue (Dubash, 2007).

    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 Murshida-

    bad have started receiving bills according to meter readings. It is

    envisaged that by March 2009, the goal of universal metering will

    be achieved (WBSEDCL, personal communication with an official

    of West Bengal State Electricity Distribution Company Ltd.).

    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% inPunjab (GOI, 2003). While electricity is priced at very low rates or

    is virtually free in many states, West Bengal has the highest flat

    tariff rate 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. 10,800/year in 2007 for submersible

    and centrifugal pumps. As a result, fiscal deficits resulting

    from agricultural electricity subsidy are 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.

    The two most important arguments against flat tariff, that it

    leads to over-exploitation of groundwater resources and 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 1620 h, West Bengals farmers

    receive relatively good quality electricity. This is also reflected

    by low incidences of motor burn-outs and associated costs

    (Mukherji, 2007b). The fourth argument that flat tariff leads to

    inequity because a lions share of the subsidy goes to the large

    land owner also is not true in the context of West Bengal. This

    is because of the existence of a 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 buyers land.2

    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 are 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 recom-

    mended 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 negativeimpact on groundwater markets. In this paper, we will therefore

    try to answer the following research questions:

    1. How is the GoWB proposing to minimise the transaction costs

    of metering?

    2. Who would gain and who would lose under the new metered

    tariff regimes?

    3. What would be the probable impact of metering on the

    functioning of groundwater markets?

    2 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 with

    5 acres of land in the absence of any water buyers would service only his own land

    and both would have to pay the same tariff.

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    4. What would be the probable impact on groundwater extrac-

    tion 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 five districts of West Bengal. This is one of the

    two surveys undertaken as part of the Groundwater Governancein 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 six districts of the state. The second data set is a qualitative

    survey carried out in 2008 in 17 villages spread across three

    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 GGA2008 survey. Table 2 gives the details of all three datasets.

    Together, these three sets of data contain observations from seven

    districts in West Bengal and these districts account for more than

    75% of the electrical pump sets in the state.

    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 ft 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 Fig. 1).3

    Power theft and tampering with meters have been also

    declared a serious offence under the Indian Electricity (West

    Bengal Amendment) Act 2001 whereby offenders can beimprisoned 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 solutions to prevent power theft,

    the GoWB has also created an enabling legal environment for its

    implementation.

    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 readerneither 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

    Table 1

    Comparison of groundwater and electricity scenario in West Bengal and other states.

    Indicators (year) West Bengal Punjab Haryana Gujarat Tamil Nadu Andhra

    Pradesh

    Source

    Level of development of

    groundwater (%) in 2004

    42 145 109 76 85 45 CGWB (2006)

    Number of over-exploited

    blocks (%) in 2004

    0 (0) 103 (74.6) 55 (50.9) 31 (16.8) 142 (37.0) 219 (19.8) CGWB (2006)

    Normal average annual rainfallin mm

    2074 780 615 1243 995 5611113 CGWB (2006)

    Nature of aquifer Alluvial Alluvial Alluvial Alluvial and

    hard rock

    Hard rock Hard rock CGWB (2006)

    Percentage of electric tubewells

    to total tubewells (2001)

    8.2 73.3 63.1 54.5 82.5 93.5 GOI (2003)

    Agricultural electricity

    consumption (MkWh) in

    20002001

    1360 8200 5171 14507 9066 11,222 Mukherjee

    (2008)

    Percentage share of agriculture

    to total electricity

    consumption (20012002)

    6.1 35.5 47.2 45.9 28.0 40.5 Planning

    Commission

    (2002)

    Flat tariff (Rs./HP/year) (2007) 17602160 Free 420 850 Free Free Authors

    Electricity subsidy as percentage

    of fiscal deficit (20002001)

    0.8 38 78 56 42 54 Briscoe (2005)

    Percentage of households

    reporting hiring irrigation

    services from others(19971998)

    67.2 19.3 38.5 N.A 24.6 33.8 NSSO (1999)

    Source: as mentioned in the last column of the table, N.A not available.

    3 For this initiative, the WBSEDCL received the PCQuest Best IT Implementa-

    tion Award in 2007 in the category of most innovative project (http://www.

    cybermedia.co.in/press/pressrelease50.html ).

    A. Mukherji et al. / Energy Policy 37 (2009) 553055395532

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    also determined by the State Electricity Regulatory Commissions

    (SERC) for the respective states and implemented through the

    SEBs. The GoWB decided to implement the TOD system. For this

    purpose, the meters have been devised with three sectors beingactivated rotationally in three distinctly different time slabs for

    agricultural pump sets. These time slots are from 0600 to 1700h

    (normal N tariff at Rs. 1.37/kWh); 1700 to 2300 h (peak P tariff at

    Rs. 4.75/kWh) and 2300 to 0600 h (off-peak O at 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.

    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 repairs, 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. Who gains and who loses?

    In this section, we will look at 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 the 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

    Table 2

    Details of data used.

    Mukherji 2004 survey 1st GGA 2008 survey 2nd GGA 2008 survey

    Nature of data Quantitative Quantitative Qualitative

    Time of survey AugustDecember 2004 JanuaryFebuary 2008 MarchApril 2008

    Number of districts

    covered

    6 5 3

    Number of villages

    covered

    22 15 17

    Number of respondents 137 155 143

    Number of electric pump

    owners

    137 108 71

    Number of submersible

    pumps

    65 86

    Number of centrifugal

    pumps

    72 22

    Number of pump owners

    who do not sell water

    7 8

    Number of water sellers 130 101 71

    Number of water buyers 0 47 72

    Name of the districts

    covered

    Birbhum, Bardhaman, Hugli, Murshidabad, Nadia, N.

    24 Parganas

    Bankura, Bardhaman, Hugli, Nadia, N. 24 Parganas Murshidabad, Nadia, N. 24

    Parganas

    Data used for Understanding the losers and gainers under metered

    tariff system among the electric pump owners

    Understanding perception of pump owners, water

    sellers and water buyers regarding metering

    Understanding the losers and

    gainers among water buyers

    Fig. 1. A schematic diagram of a generic IT Power Distribution System that is being used in West Bengal (adapted from Tongia, 2004).

    A. Mukherji et al. / Energy Policy 37 (2009) 55305539 5533

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    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

    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 electricitysupply 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 here.4 Some reflections on other definitions and likely

    adaptation of farmers are given later.

    4.1. The pump owners

    Mukherji 2004 survey contains data for hours of operation for137 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. 10,800/year in 2006

    2007 respectively.

    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 (at 0.746kWh/HP). Given the

    different tariff rates, the average electricity bill works out to Rs.

    5.54/h. To this, meter rent at Rs. 22/month per connection has

    been added. Based on the number of hours of operation of a pumpin a day and the type of crop grown5 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. Fig. 2a and b show the gainers

    and losers for submersible and centrifugal pumps respectively.

    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 h in a year will certainly

    have to pay a higher electricity bill under a metered tariff regime.

    This will be 2200 h in a year for centrifugal pumps.

    Under the existing tariff rates, the average metered tariff works

    out to Rs. 1.48/unit. However, cost of power supply for the WBSEBwas Rs. 3.77/unit in 20012002 (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 a TOD system, it is assumed that this system will

    continue in years to come. Table 3 shows how tariff rates may be

    increased in the future in order to meet the cost of generation,

    while Table 4 shows how the percentage of gainers would decline

    as tariff rates go up.

    4.2. 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 sales become 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 modes of

    payment are found, these are (i) crop and season wise cash

    contract (Rs./bigha/crop); contracts for aman and boro paddy areof this kind; (ii) hourly rate (Rs./h) 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 5 shows

    the increase in water rates for different types of crops after the

    introduction of metered tariff.

    Table 5 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 a 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 buyer, 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 buyer 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

    4 Installation of meters had started in 20062007 and it was only in

    20072008 that the pump owners in the 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, we have adopted a narrower

    definition than what would have been ideal.5 Heres an example of the way metered tariff was calculated. Assuming that a

    pump owner operated his tubewell for 24h during the boro season, his per day

    electricity consumption was Rs. 132.97 (Rs. 19.58 at Rs. 0.75/unit for 7 h, plus Rs.

    56.51 at Rs. 1.37/unit for 11 h plus Rs. 106.87 at Rs. 4.75/unit for 6 h). If however, he

    operated his pump only for 18h 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, 15h in a day and grew potato instead of boro paddy, it was assumed

    that he used all 11 h of the normal tariff, plus 2h of off-peak tariff (from 4 am to 6

    am when the day starts breaking) and 2 h of peak time (from 5 pm to 7 pm when

    there is daylight).

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    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 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

    0.0

    5000.0

    10000.0

    15000.0

    20000.0

    25000.0

    1

    Number of submersible tubewells

    Electricitybill(Rs/year)

    Predicted bill under metered tariff

    Electricity bill under flat tariff in 2006-07

    0.0

    5000.0

    10000.0

    15000.0

    20000.0

    25000.0

    1

    Number of shallow tubewells

    Electricitybill(Rs/year)

    Predicted electricity bill under metered tariff

    Electricity bill under flat tariff in 2006-07

    4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64

    4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70

    Fig. 2. (a) 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. (b) 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.

    Table 3

    Some changes that may be made to the TOD tariff in the future.

    Time of the day Existing tariff rates (Rs./unit) Enhanced tariff plan A Enhanced tariff plan B Enhanced tariff plan C Enhanced tariff plan D

    11 pm6 am 0.75 1.0 1.5 2.0 2.5

    6 am5 pm 1.37 2.0 2.5 3.0 3.5

    5 pm11 pm 4.75 5.0 5.5 6.0 6.5

    Average 1.49 2.46 2.95 3.46 3.95

    Table 4

    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 Submersible pump owners (N 65) Centrifugal pump owners (N 72)

    Percentage

    gainers

    Percentage

    losers

    Maximum cut-off point in hours Percentage

    gainers

    Percentage

    losers

    Maximum cut-off point in hours

    Existing (at 1.49/

    unit)

    63.1 36.9 2700 73.6 26.4 2200

    Plan A (at 2.46/unit) 29.2 70.8 1900 50.0 50.0 1800

    Plan B (at 2.95/unit) 18.5 81.5 1530 34.7 65.3 1345

    Plan C (at 3.46/unit) 7.7 92.3 1250 23.6 76.4 1075

    Plan D (3.95/unit) 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 3.

    A. Mukherji et al. / Energy Policy 37 (2009) 55305539 5535

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    revealed that in many villages, the water sellers were asking for

    advance paymentsa concept unheard of just a year ago.

    4.3. 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 land from the prospective

    water buyers than selling water to them (Webster, 1999).

    However, work by Mukherji (2007a, b, 2008b) show 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 the 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 four out of 17 villages, area under

    boro paddy had declined in 20072008 in response to hike inwater 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 in 10 out of 17

    villages, pump owners had shown greater interest in leasing land

    from their erstwhile water buyers instead of selling water to them.

    In these villages too, both breadth and depth of water markets are

    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 pre-dominantly 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 6). 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/h, while the price at which water is

    being sold works out to Rs. 18/h (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).

    4.4. 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 ground-

    water would reduce. Venot and 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 and Verma

    (2004) did not find any difference in pumping behaviour of

    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 four villages out of

    17, area under water intensive summer boro paddy has declined inresponse. 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 there-

    fore 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).

    Table 5

    Change in water rates after metering.

    Crop Unit Water rates under flat rate tariff i n 20 0620 07 Water rates under metered tariff in 20 0720 08 % i ncrease

    Min Max Av. Min Max Av.

    Aman paddy Rs./bigha 350 800 500 500 1000 660 32.0

    Boro paddy Rs./bigha 600 1200 850 800 1500 1100 29.4

    Any crop Rs./h 15 40 25.8 25 50 37.0 43.4

    Wheat, mustard, sesame Rs./irrigation/bigha 50 200 97.6 100 300 150.0 53.7

    Source: 2nd GGA 2008 survey.

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    4.5. 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 20012002

    to a commercial profit of Rs. 81 crore in 20052006 (http://

    siteresources.worldbank.org). Note that from 2001 to 2006, the

    flat tariff for agriculture increased from Rs. 3350 to 8950/year for

    centrifugal pumps and from Rs. 5031 to 10,930/year for sub-

    mersible 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 2160 h

    in a year and centrifugal tubewell for 1670 h in a year (Mukherji,

    2007a),6 it was calculated that on an average, the WBSEB would

    be losing Rs. 1530/year and Rs. 1572/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 7 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.

    5. 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 an initiative. The initiative of GoWB in

    this regard is quite innovative and worth emulating elsewhere. In

    terms of design of the program, 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 usagepatterns, 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 3050%. Electric pump owners number just

    above 100,000 and hence constitute less than 2% 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-a-vis the

    water sellers has declined considerably and as a result they are

    now being 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.

    Table 6

    Impact of metering on the size of groundwater markets.

    Cases Hours of operation of a

    submersible pump under flat

    rate tariff

    Electricity bill under current

    metered tariff of Rs. 6/h

    Number of hours of water to be sold to

    recover the meter bill at Rs. 18/h

    Expansion, contraction or no change in hours

    of water sold after metering

    For

    self

    use

    For selling

    to others

    Total

    Case

    1

    800 700 1500 9000 500 Contraction by 200 h

    Case

    2

    1200 600 1800 10800 600 No change in hours sold

    Case

    3

    1500 600 2100 12,600 700 Expansion by 100 h

    Table 7

    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./yeara

    Existing (at 1.49/unit) 1530 1572 175.4

    Plan A (at 2.46/unit) +1710 +932 +122.1

    Plan B (at 2.95/unit) +5739 +4047 +492.1

    Plan C (at 3.46/unit) +9767 +7161 +862.1

    Plan D (3.95/unit) +13,795 +10,276 +1232.1

    Source: Mukherji 2004 survey for average hours of operation of tubewell data. Also see Table 3 for details of each of the tariff plans.

    a This assumes that there are 112,216 electric tubewells in the state of which 20% are fitted with submersible pumps and 80% with centrifugal pumps.

    6 While calculating the electricity bill under the current TOD rates, it was

    assumed out of every 100h of operation, 57h are during the night time off-peak

    rates of Rs. 0.75/unit, 40 h are during the normal daytime tariff of Rs. 1.37/unit and

    3 h 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.

    A. Mukherji et al. / Energy Policy 37 (2009) 55305539 5537

    http://powermin.nic.in/http://siteresources.worldbank.org/http://siteresources.worldbank.org/http://-/?-http://-/?-http://siteresources.worldbank.org/http://siteresources.worldbank.org/http://powermin.nic.in/
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    This unwillingness of the pump owners to sell water is manifested

    in their eagerness to lease 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 thereforeputs 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 consumers 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 Indias 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 and

    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

    Indias 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 a tubewell is a cumber-

    some process involving permission from the State Water Inves-

    tigation 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 150,000 per tubewell. The

    GoWB should relax the stringent SWID regulations and alsoprovide 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 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 offer new possibilities for

    overcoming old problems and the GoWB has indeed adopted suchtechnology 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 Indias

    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 ground-

    water 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.

    Acknowledgement

    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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