Lopsided power sector reforms

Er. V K Gupta
The revival of power sector is central to the development of the country but the lopsided reforms carried out by the government of India during the last two decades have failed to accelerate the development. If India’s development story is to carry on, power generation and distribution need urgent attention. The reforms should not be based on text book knowledge but needs practical approach.
Now the power ministry is drafting a new Electricity Act to replace the existing Electricity Act 2003.Under this new proposed act power distribution companies (Discoms) will have to either privatize their distribution systems or start operating via franchisees. It has been claimed by the union power minister that , bill is to provide ease of doing business and ensure viability of investments through assured payment mechanisms .
The Electricity Act 2003 came into existence in June 2003 repealing all the existing electricity laws, such as, the Indian Electricity Act 1910 and the Electricity Supply Act 1948. The primary objective of the Act 2003 was to promote competition. All the State Electricity Boards have been unbundled into two or more separate entities of generation, transmission and distribution.
Further to enhance generation, licensing has been done away with completely except that techno-economic clearance would be required for hydro projects. This opened the floodgates of private thermal generation capacity across the states and the states bent over board to provide incentives to the private developers .They took undue advantage of the situation and forced the states to sign power purchase agreements (PPAs) with deemed generation clause. Due to the preferential load guarantees given in PPAs signed with private generators, public owned power stations are compelled to back down and reduce or stop production resulting in revenue loss.
The losses to the public exchequer on account of this are mindboggling large. The power utilities are now feeling the pinch of these lopsided PPAs and consumers are forced to pay for these costly lapses made at the behest of politicians. A point has already reached where the State can no longer bear the losses. The result would be the imposition of supply cuts on sections of consumers such as farmers, small households, and small commercial establishments.
There was financial bailouts for the state electricity boards during UPA Government but the Government did not bother to discuss the issues of power sector with its engineers and employees. Even the NDA’s Uday scheme gave massive relief through financial restructuring of loans converting their 14-16% interest-bearing loans to State Electricity Boards into State Government bonds with interest rate of around 8-8.5%.The implementation of all these schemes had been patchy and the politicians listened to the only drawing room bureaucrats and not to the field engineers and employees. The result was that even the Uday scheme did not deliver either though there was reduction in line losses which was the results of employee’s efforts.
Now the power ministry has come up with another idea that the Electricity Act 2003 needs a complete over hauling and has proposed the new bill to mandatorily link funding from central Government financial institutions to the new set of reforms. The moves of Government to privatize the power distribution sector in one go with the intention of separating carriage and content. The bill is aimed to facilitate private houses in the name of consumers.
The proposed bill is being drafted without working out the details and setting the rules which will result in litigation. Since the Electricity Act 2003, there has been an exponential rise in litigation and private companies have earned more from litigation than the generation.
Ministry of Power must get comprehensive data and documents on franchise and privatisation experiments since enactment of Act 2003 and analyze the same after discussion with engineers and employees.
There are wide spread apprehension amongst power professionals that sweeping changes proposed by Ministry of power would cause further deterioration and collapse of State power utilities across the country. The proposed bill aims to erode the constitutional provision of electricity being a concurrent subject is being subverted with systematic centralization. The public sector will be completely replaced by private sector in power distribution.