TeaThe Narendra Modi government has introduced the Electricity Amendment Bill 2022 to reform the power sector. The ‘Items and Reasons’ for the Bill, which has been referred to the Select Committee, seeks to amend the Electricity Act 2003, which has brought about “major changes and reforms in the generation, transmission, distribution, trade and use of electricity by promoting competition”. and to protect the interests of consumers by ensuring the supply of electricity to all areas.” The ‘objective’ statement of the 2022 Amendment Bill states that due to “continuous as well as new challenges of power sector stability, contract enforcement, payment security mechanisms, energy transition and the need to provide choices to consumers” competition etc. It has become necessary to make some amendments in the Act to promote
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first set of fixes
First, a brief recap on the original World Bank (WB) and USAID-sponsored reforms that began in 1996 based on a report submitted by US Consultants called for state electricity boards to be replaced with ‘unbundled functions’ as ‘independent organizations’. ‘ was suggested. [SEB], These organizations would then be transformed into ‘privately owned firms’, which would provide much growth in the power sector because “the pursuit of profit would drive their activities, and they would have a higher business orientation than most state-owned organisations.” In a jiffy, privatization and profit reform became the new mantra.
Under this reform agenda driven by the World Bank and the Asian Development Bank (ADB), electricity generation was to be privatized first along with the cost of electricity. While sovereign guarantee and special escrow mechanism were provided for payment of high cost private power, NTPC and SEB were banned for not creating additional generation capacity. Independent power producers (IPPs) owned by multinational utilities relentlessly ventured into the fray, hoping to reap the low-hanging fruits. But due to Seb being almost bankrupt, it didn’t work out. Instead, scams like Enron happened. In 2002, WB and ADB panicked and withdrew from India’s power sector. IPP back too! Despite the Electricity Act 2003, to facilitate private investment and promote competition, the power sector continued its decline into chaos, resulting in the massive debt burden of the SEBs, which peaked in 2011 and continued to grow.
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second set
In July 2012, US President Barack Obama announced that “India needs a second wave of reforms.” And as if hinted, the Indian government again went to the World Bank which made a new diagnosis in 2013 and suggested the following reforms on the distribution side of electricity:
1. Ring-fence urban and rural customers and only consider the license, franchise, or PPP model in urban areas. 2. STATE DISCOMS are responsible for rural supply. 3. To set up urban franchisees and encourage them to gradually expand their services to cover rural areas. 4. Rationalization of domestic tariffs to improve targeting and reduce fiscal burden. 5. At the consumer level, more than one supply licensee has the option to compete with each other and retail consumers to migrate from one supplier to another. 6. CERC/SERC will issue multiple supply license and interim state owned DISCOMS will continue to supply power. 7. Retail supply to consumers has been opened up to many players, mostly to enter private competition, providing consumers with a choice. 8. Power from new and costly projects is to be balanced among the supply licensees to ensure equal opportunities for new players. 9. To charge a nominal fee for obtaining a supply license.10. SERCs will set only one price cap, as was done in the telecom sector initially. 11. The distribution wire business will be with the existing DISCOMs. 12. For industrial consumers with load above 1 MW to get mandatory open access at market rates and to move out of regulated tariff regime.
The Electricity Amendment Bill 2022 is almost a carbon copy of these suggestions and its real aim is to weed out the private players who messed up the power sector and are in deep financial trouble. Taking advantage of the liberal provisions of the Act, these qualifications led to the setting up of mega- and ultra-mega-power plants, which significantly increased the installed capacity in the private sector, which is part of 49.5 percent Now as against almost zero before the reforms. All of them have entered into Power Purchase Agreements (PPAs) with various Discoms/Utilities in the country. Since the demand did not pick up and the cost of power purchase was high, the discoms could not buy the generated power. Even where electricity was purchased, they could not pay it. Private players also skewed the power-mix in favor of thermal generation, leading to a sharp mismatch and idling of thermal capacity leading to a fall in the average plant load factor (PLF) to 58.87 per cent in 2021-22. [central 69.71; state 54.50 and private 53.62], This made most of the private power plants non-performing with heavily stressed assets, the responsibility of which fell directly on the public sector banks.
In addition, the 2022 Bill only takes forward the market-solution-solution-all-diseases principle of Montek Singh Ahluwalia, the principal architect of the Electricity Act 2003. Allowing generation companies to sell directly to distribution companies and wholesale consumers, thus creating a competitive market where producers can make investment decisions based on demand without relying on power utilities or the state government. it will bring electricity at par with other goods and services, where competition and market forces determine efficiency levels, investments and pricing. At the core of this theory were “open access” to the grid and “privatization” of electricity generation. But equating electricity to market economy-friendly goods and services reflects a serious lack of understanding of electricity as a commodity, and the profile of its consumers—from the richest to the poorest—to the poor.
Let us review some of the key aspects of Electricity Bill 2022:
- The Electricity Regulatory Commission (ERC) will issue a number of distribution licenses in the area of supply as per the norms laid down by the central government. This will lead to “cherry picking” as the private players will explicitly opt for ‘profitable sectors’, leaving the ‘disadvantages’ to the state discoms. Further, if the ERC fails to grant the license or reject the application within 90 days, the applicant will be deemed to have been “licensed.” Thus companies entering the electricity distribution business by default is a very dangerous prospect which opens up a flood of corruption and favoritism that can put consumers at serious risk.
- In the new scenario, the cross-subsidised consumers will shift to private companies and the subsidized consumers will remain with the government company, putting a heavy burden on the state exchequer. The Bill provides for a cross-subsidy balancing fund which is in line with the Universal Service Obligation Fund introduced in telcos. This fund, specially created to compensate BSNL’s loss by providing only fixed line services in remote areas, helped private operators to provide mobile services there. Something similar will happen in the power sector as well.
- The Bill bars Regional and State Load Despatch Centers (RLDCs and SLDCs) from dispatching electricity if payment security mechanism is not provided by the distribution licensee. Further, apart from diverting these hi-tech agencies from their core responsibility of ensuring grid stability, it would also mean supplying power to the state discoms and supplying power to the state discoms until the payment is made in full. will not be supplied. This can have dangerous consequences for states and consumers.
- The imposition of renewable energy purchase obligations with harsher penalties is meant to favor large centralized solar plants owned by corporate business houses, which charge much higher fees as per the pre-existing PPAs. This will also run against the energy transition agenda of decentralized and distributed generation and off-grid supply, especially for rural consumers.
- The vesting of unlimited and undefined powers with the Center would seriously compromise the functioning of regulatory commissions and make them subordinate bodies of the central government rather than autonomous bodies. This may prove to be detrimental to the interests of the states.
Despite electricity being in the Concurrent List, the Center did not give time to the states to express their views on the proposed amendments and in the process the fundamentals of federalism were crushed. Blindly adopting its provisions would be against the letter and spirit of the Constitution of India. The Bill will further dilute the finances of state discoms; Utility employees are adversely affected; Paralyzing the finances of the states and putting huge cost burden on small subsidized consumers, especially farmers, only to benefit corporate business houses. States cannot ignore the far-reaching effects of the Bill on their economy, finances, agricultural and industrial development and social equality and harmony.
The clear objective of the bill is to convert electricity into a market commodity and introduce competition that will reduce tariffs and make electricity affordable and accessible to every consumer, including the poor. But the question is, is such competition possible in the power supply industry? In this context, the recent communication of the Electricité de France SA (EDF) with the World Bank becomes relevant: “Modern economic theory tells us that competition is more difficult to introduce in network infrastructure than in other industries, and in electricity.” more difficult. Other networks. We also know that competition does not streamline regulation but on the contrary makes it more complex and cumbersome. The introduction of competition creates a “half-free, half-slave” zone….” The EDF further states that all this talk of privatization and competition is to open up the power sector of developing countries to foreign operators and capital.
This is more true of India than France. Taking all dimensions into account, the Electricity Bill 2022 will be a worse remedy than the disease afflicting India’s power sector.
MG Devasahyam is a retired IAS officer and the chairman of People-First. He also served in the Indian Army. Thoughts are personal.
(Edited by Anurag Choubey)