The power stand-off

Published : Jan 31, 2003 00:00 IST

West Bengal Power Minister Mrinal Banerjee. - SUSHANTA PATRONOBISH

West Bengal Power Minister Mrinal Banerjee. - SUSHANTA PATRONOBISH

The West Bengal Electricity Regulatory Commission abolishes the cross-subsidy in the power tariff structure for Kolkata and Howrah in a single sweep, and the Left Front government proposes to take legal action against this.

THE Left Front government proposes to take legal action against the West Bengal Electricity Regulatory Commission's (WBERC) decision to abolish cross-subsidy in the Calcutta Electric Supply Corporation's (CESC) tariff structure. This situation has been precipitated by the ERC's interpretation of a recent Supreme Court judgment as a directive to abolish cross-subsidy, whereas the State government saw no scope for such interpretation in the order. Based on the ruling, the average tariff was fixed at 390 paise per kilo watt hour, or unit, and was made uniformly applicable to all sections of society. As such, a slum-dweller with an electricity connection would have to pay the same rate as a person living in a bungalow.

The CESC had fixed the average tariff for the lowest bracket of consumers at 160 paise per unit; for middle-class consumers at 225 paise per unit, and for the affluent class at 490 paise per unit. For industrial consumers, the average tariff is around 460 paise. With the WBERC fixing the tariff at a uniform 390 paise per unit, it is the poor and middle-class consumers who are the worst hit. They will now be paying on an average 230 and 165 paise more per unit respectively, while those who can afford it the affluent and the industrial consumers will be paying 100 and 70 paise per unit less respectively. The CESC, which supplies power to Kolkata city and Howrah, has more than 17 lakh consumers who belong to the low and middle-class strata.

State Power Minister Mrinal Banerjee told Frontline: "This will have a disastrous impact on the State. In the kind of society that we live in and the socio-economic conditions prevalent here, abolishing cross-subsidy at one go is extremely pernicious. Naturally, we shall have to give subsidies, and since we do not have that kind of money at our disposal, other sectors will have to suffer.''

The Electricity Regulatory Commissions Act, 1998, which paved the way for the creation of the Central Electricity Regulatory Commission (CERS) and gave the States the option to set up their own ERCs, states categorically in Chapter VIII, Section 29(3): "The State Commission while determining the tariff under this Act shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer's load factor, power factor, total consumption of energy during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required.'' The then Union Power Minister, the late Rangarajan Kumaramangalam, had said: "We are very clear that where subsidy has to be given, that subsidy, after cross-subsidisation, must be made available by the State governments.'' It is important to note that both the Act and Kumaramangalam's statement provide for the abolition of cross-subsidy at one go.

The circumstances that have led to the stand-off between the West Bengal government and the WBERC are as follows: the CESC's earlier tariff structure was fixed in 1998 at an average of 330 paise per unit and in November 2001 it came under review by the Commission, which increased it to an average of 337 paise per unit. The Commission also mentioned in its order that there would be a gradual abolition of cross-subsidy. Subsequently, the Kolkata High Court ruled in favour of the CESC, and allowed a tariff of 396 paise per unit and even raised questions regarding the authority of the ERC.

The matter then moved to the Supreme Court in June 2002. The Supreme Court order came in October. The average CESC tariff based on that order was worked out at 390 paise per unit. The ruling also rejected the High Court's questioning of the ERC's powers. On December 16, 2002, the Commission released the order of uniform fixation of tariff. Mrinal Banerjee said: "The Supreme Court ruling says that the Commission's approach was correct, and that has been interpreted by the ERC to remove cross-subsidy at one go. However, in the approach that the Supreme Court refers to, cross-subsidy was very much present. In its earlier order the Commission said that there would be a gradual removal of cross-subsidy.''

Although the WBERC was set up by the State government and its members were chosen by a panel comprising the State Chief Secretary, a High Court Judge and a member of the Central Electricity Authority, the State government has stayed out of its affairs. "We did not wish to interfere as we wanted the Commission to maintain its independence in going about its functions. However, we could not even conceive of the ERC withdrawing cross-subsidy in one sweep. With the practice of cross-subsidy gone, the entire pressure of providing necessary subsidy for the lower income group falls on the State government,'' the Minister said. In this matter, the State government has also found an unlikely ally in the Union government. "I have spoken to the Union Power Minister and the Union Power Secretary and they have both assured me that if necessary they will join us in our campaign against the abolition of cross-subsidy.''

The abolition of cross-subsidy will have far-reaching consequences that would not be restricted to West Bengal. According to sources in the power industry, there is a clear possibility of this system being adopted in other states too. An incredible increase in the domestic power tariff is predicted widely. In States such as Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and Rajasthan, where agriculture is by and large mechanised, abolition of cross-subsidy will have a particularly hard impact. "In those regions, hypothetically, if the average tariff is 350 paise per unit, the cultivators pay only about 50 paise. If the subsidy is removed totally there, it would have an adverse effect on the rural economy,'' said a knowledgeable source in the State Power Department.

Prior to the enactment of the Electricity Regulatory Commission Act, 1998, the Indian Electricity Act, 1910, and the Electricity Supply Act, 1948, governed electricity tariff. Although the State government did not have the legal authority to fix the tariff de facto, it more or less exercised that power. It was only after 1998 that de jure authorities were instituted to fix the power tariff. This quasi-judicial body was constituted to ensure that fixing of the tariff was not governed by any populist considerations, as was the case earlier on. It was also aimed at improving the financial health of the utilities, which were continuously suffering because of unrecovered costs. It was with these considerations that the Left Front government set up the WBERC in January 1999, which became operational in December that year. However, at the time of the WBERC's creation, the government would not have foreseen a situation in which it would have to resort to legal action against the body.

Mrinal Banerjee does not see a quick resolution to the deadlock. Repeated exchange of letters between the two parties has finally ended with the State government having no other option but to take the matter to court. "As far as I can see, this is going to be a protracted affair and will finally end up in the Supreme Court,'' said Mrinal Banerjee.

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