Power reforms have taken the backseat and promises of reforms and competition have been given up by the Centre
The Electricity (Amendment) Bill, 2022 proposing amendments to the Electricity Act, 2003, with the stated objective of transforming the power sector, was introduced in Lok Sabha on August 8, 2022. Facing stiff resistance from the opposition parties, it had to be referred to a Standing Committee.
The Opposition parties especially those ruling the State governments opposed the amendments on two major grounds: (i) these would result in over-centralization of the power distribution (Under the Constitution, distribution is a State subject even as generation and transmission (G&T) are under the purview of the Union Government]; (ii) these curtail powers of the States to give subsidy to farmers – an allegation denied by RK Singh, the Union Minister for Power and New & Renewable Energy.
The irony is that proposed amendments in the Bill (2022) are nowhere near the de-licensing of the electricity distribution business – as proposed in the draft Electricity (Amendment) Bill or EAB, 2021 – which was intended to bring in competition, and give the consumer power to choose suppliers (or “open access”).
For a better understanding as to why the bill doesn’t come up to the mark, let us capture some basic facts about the architecture of the power sector in India. Under the extant arrangements, an overwhelming share of power generated by public sector undertakings (PSUs) such as the National Thermal Power Corporation (NTPC), etc., and independent power producers (IPPs), besides generating stations of State Electricity Boards (SEBs) is procured by power distribution companies or discoms (these are mostly owned and controlled by State governments) under power purchase agreements (PPA). Most of these PPAs are long-term contracts up to 25 years.
A mere 5 per cent of the electricity is traded. Under instruction from the top political brass in the State establishment, discoms sell a major slice of electricity – thus procured – to some preferred consumers, viz., poor households (PHHs) and farmers, either at a fraction of the cost of purchase, transmission, and distribution, or even free. On the units sold to these target groups, they incur colossal under-recovery. This is aggravated by aggregate technical and commercial (AT&C) losses – most of it is plain theft.
In a bid to offset the loss, discoms charge high tariffs on supplies to industries/businesses besides non-poor HHs (NPHHs). The former are the sole suppliers of electricity; hence, the latter have no option but to pay. It is a different matter that despite this cross-subsidization, overall discoms continue to incur huge losses.
There is a need for strengthening discoms as competition and resultant benefit to the consumers is possible only when all players are strong.
This in turn, will require that (a) discoms are unshackled from State control and are free to set tariff on supplies to all their consumers – including poor households (HHs) and farmers based on their cost of purchase, wheeling and distribution and negotiate PPAs; (b) States give subsidy directly to the target groups using DBT (direct benefit transfer) instead of riding piggyback on discoms.
Does the Bill match these expectations?
The provision for multiple distribution licensees in an area of supply existed even in the 2003 Act with a caveat that all licensees would distribute electricity through their own network. The Act also had a provision for ‘open access’. But, this didn’t deliver. This is because another provision in the Act required such customers to pay an ‘open access surcharge’ (OAS) to the discom that they wanted to leave. By fixing the surcharge at a high level, the States ensured that post-switch, the effective cost of power — tariff charged by the new supplier plus OAS — was higher than what they paid to the discom.
That rendered the switch uneconomical. The Centre will prescribe the criteria for deciding who will get the license to supply in a given area. The licensees will have to share the power and associated costs as per the existing PPAs of the existing discom. To meet any additional requirements, a licensee may enter into additional PPAs but only after meeting the obligations of existing PPAs. Such additional power need not be shared with other discoms. Under the 2003 Act, the State Electricity Regulatory Commission (SERC) specifies the ceiling for tariff charged by licensee. As per the 2022 Bill, the SERC will also specify a minimum tariff for such cases.
The proposed dispensation doesn’t make things any better. There is no de-licensing of power distribution even in wild imagination. Besides, a private player will merely be roped in to complement what the existing discom is doing (instead of giving an alternative). The former will get shackled as much as the latter even as the tariff – floor as well as the ceiling – and other modalities will be decided by the bureaucrat in the power ministry.
The private firm may get some leeway when it comes to purchasing additional power which it doesn’t have to share with other discoms. Here again, charges payable to the existing discom for using its network is the elephant in the room. Setting these at high level – on the lines of OAS charged by States under the Electricity Act (2003) – will undermine its ability to keep costs low.
The Bill (2022) also provides for the state government to set up a Cross-Subsidy Balancing Fund (CSBF). Any surplus with a distribution licensee on account of cross-subsidy will be deposited into the fund. The fund will be used to finance deficits in cross-subsidy for other discoms in the same area or any other area. This shows that neither there is an effort to stop using discoms/licensees from giving subsidized power to farmers/PPHs nor put an end to charging high rates from the industry and businesses.
The Bill talks of the SERC fixing minimum tariff or simply, charging some amount from the preferred groups instead of giving them free. But, it seems highly unlikely. Long back, the State chief ministers had vowed to charge a minimum 50 paise per unit from farmers. Sadly, this is yet to see the light of the day.
In effect, the Bill maintains the status quo. Suppliers other than State owned/sponsored discom won’t come; even if they do, they will be hamstrung by controls. There won’t be any competition and industries and businesses (besides NPHHs) are unlikely to get any relief in tariff.
Yet, losses of discoms will continue unabated as there are no plans to disband subsidy to PHHs or farmers. Meanwhile, the Bill has several provisions which will lead to the Union Government appropriating to itself more power in selection of licensees, tariff setting, appointment of the members of the SERC and Appellate Tribunal for Electricity (APTEL).
(The author is a policy analyst)
https://www.dailypioneer.com/2022/columnists/unyielding-opposition-derails-power-reforms.html
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