Centre eyes privatisation push through Electricity (Amendment) Bill

It further dents the federal structure and allows private players to use government networks.

Telangana power sector employees protesting against the Electricity (Amendment) Bill, in Hyderabad on August 8. | Photo Credit: G. RAMAKRISHNA

The Narendra Modi government is known for its tendency to push through legislation without a discussion or by using the ordinance route. It did not, however, manage to summarily push through the Electricity (Amendment) Bill, 2022. Union Power Minister R.K. Singh introduced the Bill in Parliament on August 8. It seeks to strengthen regulatory and adjudicatory mechanisms and usher in administrative reforms through a system of corporate governance of distribution licensees.

The opposition parties were against it, as were electricity sector employees. Manish Tewari of the Congress and N.K. Premachandran of the Revolutionary Socialist Party, both MPs, expressed concerns pertaining to privatisation, lack of consultation with States and the undermining of federal principles. Thirteen non-BJP State governments and 10 central trade unions reportedly opposed the Bill on the grounds that it would erode federalism, increase centralisation of the functions of distribution companies and State Regulatory Commissions, undermine the public power sector, encourage privatisation in power distribution, lead to reduction of  cross subsidies, create regional disparities in power distribution—all of which would ultimately lead to higher tariffs for all consumers. After the uproar in Parliament, the Bill was referred to a Parliamentary Standing Committee headed by Rajiv Ranjan Singh of the Janata Dal (United).

Raj Kumar Singh, Minister of Power and New and Renewable Energy. | Photo Credit: KAMAL NARANG

The government claims that it consulted all stakeholders, including the States. Employees’ associations such as the Electricity Employees’ Federation of India (EEFI) and the National Coordination Committee of Electricity Employees and Engineers (NCOEE) disagree. The NCOEE, comprising six federations, opposed the Bill on the grounds that it paves the way for greater privatisation in the electricity distribution sector with adverse effects for ordinary consumers and agriculturists. The Kerala Assembly unanimously passed a resolution rejecting the amendments. This was conveyed to the Centre by the Kerala Power Minister. The Tamil Nadu Chief Minister has also announced that he will take up the matter with Prime Minister Modi. The Samyukta Kisan Morcha, which led the farmers’ agitation in 2020-21 that resulted in the repeal of three farm Bills, had opposed the Bill in its previous avatar.  

Total “unbundling”

Sudip Dutta, West Bengal working president of the Power Transmission Employees’ and Workers’ Union, says this is the fifth time since 2014 that amendments have been moved in the Electricity Act, 2003. The Act itself is problematic as it seeks to de-license power generation and privatisation of State Electricity Boards. It proposes the concept of “open access” with large consumers getting to choose their power suppliers, bypassing distribution companies.

The “unbundling” of the sector began in the 1990s, following the dictates of the Bretton Woods Institutions. Unbundling is a euphemism for the privatisation of generation, transmission and distribution of electricity. The amendments being proposed now argue that the consumer will have more choice in selecting their supplier. The target, critics say, is total unbundling as recommended by the NITI Aayog in a policy paper in 2021. One of the amendments recommends horizontal unbundling whereby consumers will be given a choice of more than one supplier. But if the supplier has an apprehension that the consumer will not be able to pay for the service, the connection can get disabled, explains Dutta.

Subsidies being targeted?

Globally, Dutta says, distribution utilities are publicly owned. The objective of the amendments in the Electricity Act is to reduce cross-subsidisation and agricultural subsidies. The NITI Aayog had observed that Discoms (distribution companies) stood to lose out on higher paying customers because of the cross-subsidy regime. It recommended “tariff rationalisation”, another euphemism for higher tariff rates, and expressed concern that State Electricity Regulatory Commissions (SERCs) did not increase tariffs to match the increasing costs of discoms in order to shield consumers from tariff shocks. The policy paper argued that “the Act requires that cross-subsidies... be progressively reduced and eliminated. They have been increasing over the last few years. In this light, reforms such as tariff rationalisation become even more important as OA [open access] becomes more widespread.”

Dutta says that in 2007 also there were attempts to introduce amendments to do away with cross-subsidies. The EEFI fought hard to retain the provisions in the Act, which ensured that the government’s responsibility towards rural electrification was not reduced.

“Ease of doing business”

The objectives of the Bill state that the amendments have been made to ensure “ease of doing business”. Distribution players will not require a licence, only a registration. Appropriate commissions (SECs) would need to grant permission after registration and the Central government will decide the fee for such registration.

The Bill introduces several amendments which arrogate more power to the Centre in certain areas of decision-making. The Centre will decide the “floor” and “ceiling” tariffs, which State regulators decide now. The Central government will decide the criteria for distribution licensees. Trading in electricity will also be mandated by the Central government “to ensure the stability of the power system”. The areas of licence have not been defined, which means some areas and consumers may end up being under-served while others may be over-served. Dutta says private licensees are known to prefer urban areas with high population density over remote rural areas.

Highlights

• The Union government could not summarily push through the Electricity (Amendment) Bill, 2022. 
• The Bill has been referred to a Parliamentary Standing Committee.
• The Bill is being opposed by political parties and electricity sector employees on the grounds that it will erode federalism, increase centralisation of the functions of distribution companies and State Regulatory Commissions, undermine the public power sector, encourage privatisation in power distribution, lead to reduction of cross subsidies, create regional disparities in power distribution.
• The final result of all this will be higher tariffs for consumers.

Under the proposed legislation, if the SECs fail to grant, or reject, a licence within the time limit, the applicant will be deemed to have been granted the licence. The Bill envisages greater powers for the National Load Despatch Centre (NLDC) to serve as an apex body for the integrated operation of the power system in the country, also making it  responsible for the scheduling and despatch of electricity across States in accordance with the contracts entered into with the licensees or the generating companies. Here comes the catch. No electricity will be despatched or scheduled under such contract unless adequate security of payment has been given. The NLDC will monitor grid operations and issue directions to Regional Load Despatch Centers and State Load Despatch Centers. It will supervise and control inter-regional and inter-State network. The regional centres, State centres, licensees, generating stations, sub-stations and any person connected with the operation of the power system must comply with the directions of the NLDC.  The NLDC will have the right to stop distribution of electricity to any State if the State Discom fails to pay the amount to transmission and distribution companies.

Blow to federalism

A close look at the Bill, a copy of which is available with Frontline, shows that the amended sections seek to ensure centralisation of powers. The States have naturally objected vociferously. The clauses that have the potential of transferring on the consumer the burden of recovering losses have been opposed.   

In a recent interview to The Hindu, Alok Kumar, Secretary, Ministry of Power, claimed that there was no move to reduce cross subsidies and subsidies for agriculture. Yet, additional clauses inserted in Sections 86 and 61 in the Bill seek to ensure that the tariff “recovers all prudent costs incurred for supply of electricity” and “reduces cross subsidies in the manner specified by the Appropriate Commission”.

The Bill stipulates that the tariffs will have to ensure reasonable returns on investment in order to ensure the financial stability of the licensees. Shailendra Dubey, chairperson of the All India Power Engineers’ Federation, says it is obvious that the plan is to realise this by putting the costs on the consumer.

Dubey’s grouse is also that the government did not consult the biggest stakeholders —the consumers and the 27 lakh power sector employees. Both Dutta and Dubey opine that the primary objective of the Bill is to let private corporations supply electricity through the vast, already existing network of government companies, on the lines of what was done to BSNL in the telecom sector, finally reducing BSNL to a standby player in telecommunications.

The Bill provides for a Cross Subsidy Balancing Fund to be set up by a government agency. Distribution licensees are required to deposit any surplus with this fund and this money will be used to make good the deficits in cross subsidies in the same area or any other area of supply. Critics say that this Fund is akin to the Universal Subscriber Obligation Fund in telecom where the USOF is used to offset the losses BSNL incurs for providing fixed landline services in remote areas. The USOF finally ended up supporting private operators set up mobile services in remote areas.

Choice, but for whom?

Dutta and Dubey also point out that the amended legislation will provide a choice to private electricity suppliers rather than consumers. The Universal Supply Obligation stipulated in the Bill will finally apply only to government companies as they have a responsibility to supply power to all consumers irrespective of their paying capacity. On the other hand, private companies will supply and distribute power only where they deem it profitable, to commercial entities and big industrial consumers. Experiments with privatisation in some metros have backfired with consumers having to bear a manifold increase in unit cost.

One amended section stipulates that all distribution licensees can use the distribution systems of other licensees in the area for supplying power through a system of non-discriminatory open access on the basis of “wheeling charges”. This provision will allow private distributors to freely use the existing networks set up by government companies. The wheeling charges that they will pay will get transferred to the consumer as tariffs will reflect input costs.

The experience of privatisation of distribution has been a failure, says the NCCOEE. It quotes umpteen examples where regulatory commissions had cancelled licences in Gaya, Samastipur and Bhagalpur in Bihar; Kanpur in Uttar Pradesh; Gwalior, Sagar and Ujjain in Madhya Pradesh; Aurangabad and Jalgaon in Maharashtra; and Ranchi and Jamshedpur in Jharkhand. In a densely populated and high revenue distribution area like Mumbai, multiple licences were offered but that eventually resulted in multiple litigation and little else, say critics.

The Bill is now with the Standing Committee, but Standing Committee recommendations are not binding on the government.