Why Indian states are opposed to the Electricity Amendment Bill

The Ministry of Power in the latest Monsoon Session of Lok Sabha introduced the Electricity (Amendment) Bill 2022 with an objective to transform the power sector, with a special focus on boosting the power distribution network in the country. However, the move did not go well with the opposition parties, as a majority of them vehemently opposed it.

Forced by vocal opposition to the Bill in the House, the federal government sent the legislation to a Parliamentary Standing Committee for a better scrutiny of the Bill, before initiating a discussion on the same in the House. Political parties such as the Indian National Congress, Trinamool Congress, the Communist Party of India-Marxist and others, opposed the introduction of the Bill in the Lok Sabha citing threat to the powers of the states, a fear of an increased privatisation of the power sector in the country. They also had apprehensions regarding the subsidies given to farmers for electricity, being snatched away. The Bill aims to amend the principal Act – The Electricity Act, 2003, which governs the electricity business in India.

Union Power Minister RK Singh, during the Lok Sabha session, denied several apprehensions of the rival parties calling it a “false propaganda”. He told the Lok Sabha, “The Bill does not mandate snatching any kind of subsidies for the farmers and the provision of allowing more than one distribution company (discom) in one area was already prescribed in The Electricity Act of 2003.”

However, it’s not just the political parties that are against the controversial Bill, but also the Samyukt Kisan Morcha, a coalition which had spearheaded the farmers protest following newly introduced farm laws in India in 2020-’21. The coalition had also raised their apprehensions against provisions of the Bill. The All India Power Engineers Federation has also written to the government voicing their views about the provisions of the Bill.

The power ministry in the ‘statement of object’ of the legislation claimed that the legislation was meant to boost the competition and efficiency of power distribution companies in order to enhance non-discriminatory open access, so that the services given to consumers are improved and the power sector becomes sustainable.

The most controversial reform the Bill tries to impose, is the provision of allowing more than one power distribution company in one region which could lead to the end of monopoly of one power network in one area. It also mandates several changes in the powers of the State Electricity Regulatory Commissions in terms of regulating the power tariffs in the country, gives the SERC powers equivalent to a civil court. The new Bill also attempts to remove the punishment of jail term in case of defiance of rules made under the Bill, and in the case of offences like power theft, but keeps the provision of fines with an increased amount going up to Rs 1 crore per offence.

The discom dilemma

While the new Bill proposes 35 amendments to the massive 84-page Electricity Act of 2003, one provision that stands out is Section 5 of the Bill which is about allowing more than one distribution licensee (or discom) in one region to distribute power to the consumers. Although the provision of allowing more than one discom in one area was also mentioned in the 2003 Act, as per the old law the new discom had to have its own wire and distribution infrastructure. The new Bill, however, envisages a regime where the new entrant can use the distribution infrastructure of the existing discom by paying some charges like wheeling charge and others. Opposition parties and others see this as an alleged attempt to boost privatisation in the power distribution business with this provision.

Somit Dasgupta, a senior visiting fellow at the International Council for Research on International Economic Relations told Mongabay-India, “The most distinctive feature of the bill under consideration is the concept of multiple distribution licensees in each geographical area. While there can be multiple distribution licensees, the distribution wires of only one of the licensees will be used. The concept of having multiple licensees in one area is not a workable proposition in India where we have large scale cross-subsidy, huge commercial losses etc. The central government is well within its rights to suggest something as a matter of policy since ‘power’ is a concurrent subject, but the problem is that it is not viable,” Dasgupta elaborated.

“What is more mystifying is that in case an applicant applies for a distribution license in more than one state, the license will be granted by the CERC and not the SERCs. CERC actually has nothing to do with the subject of distribution,” he continued.

He also claimed that as around 80 percent of the costs incurred by discoms are in purchasing powers from power generating companies, the consumers are not likely to get any great benefits in a case of availability of more than one discom competing with each other.

Can multiple discoms help meet the losses?

The concept of co-existence of multiple discoms in a single area is not alien to India. In Mumbai, there existed a model in which two discoms operated together. However, it was mired in several litigation processes and experts do not cite this as a success model.

Ashwani Ghayal Chitnis, Senior Advisor, Legal Initiative for Forest and Environment cited the Mumbai case and said that multiple players cannot be linked to lowered costs. “There is no data to support the assumption that simply having multiple privately owned distribution companies will lead to cost improvements. The success of the proposed changes will depend on parameters such as: how the area of supply is defined, what would be the basis for determining the floor and ceiling tariffs, would there be regulatory certainty for cost recovery for all distribution licensees, who will invest in network augmentation, and so on. However, these absolutely crucial details are not part of the proposed bill and will be defined later on by the central government through rules,” she told Mongabay-India.

She also added that this kind of opaque process does not bode well for creating a transparent and level playing field, which is a pre-requisite for healthy competition. “Also, there is no effort to improve and strengthen consumer participation and public accountability of the regulatory commissions. Issues with the current system such as, lack of access for a common consumer to approach the fora such as the Appellate Tribunal For Electricity or CERC, remain unaddressed,” she said.

A study report by Chitnis and Saumya Vaishnava, on the Mumbai model of multiple discoms earlier had claimed that although the cables were underground and saw less losses the competition in terms of distribution was not very much significant, as the consumers who wanted to transit had to pay heavy regulatory charges which proved as a deterrent.

A 2021 report of the NITI Aayog also claimed that in several parts of India, the presence of private players in distribution networks is significant in cities like Delhi, Surat, Ahmedabad, Kolkata and Mumbai which also saw reduction of distribution losses. But the report also cited the example of Odisha, where four discoms were privatised in 1999, but they could not help in improving the distribution system or reduce losses while one private discom even abandoned the attempt leading to its de-licencing.

Other reasons for criticism of amendments

The Bill also suggests that the central government can give directions to the SERCs directly, bypassing the states, which is another reason for opposing, added Dasgupta. “Further, the composition of the selection committee for appointing the Chairman and the members of the SERCs, has been altered somewhat. Currently what happens is that the Central government provides direction to the CERC, and the states give directions to the SERC. But the Bill proposes that, now the Centre can give directions to the SERC directly, which the states are likely to oppose,” he explained.

The All India Power Engineers Federation, Andhra Pradesh State Power Employees Joint Action Committee and other power sector associations are also against the bill. Shailendra Dubey, Chairman of the All-India Power Engineers Federation told Mongabay-India that this Bill could allow the power discoms to cherry pick the preferable profitable areas and not likely to benefit the domestic consumers more as claimed in the bill.

“The government is comparing electricity distribution infrastructure with that of telecom distribution. While telecom works on airwaves, electricity is supplied with huge infrastructure with wires, transformers, and others. The Bill will not give equal playing opportunity to the government discoms and private players because while the onus is on the government discoms to reach out to all sets of consumers, the private players would be allowed to use our infrastructure,” Dubey told Mongabay-India.

“So, with this Bill, the government units are likely to face the brunt of investing in all areas without discriminations, private units will have the advantage of choosing their area of their choice without any infrastructure of their own. In such a situation, the government discoms of today would become the BSNL of tomorrow,” said Dubey.

Discom health and RPO obligations

Discoms in India are often seen incurring losses in their power distribution business which has remained a major challenge for decades, yet to be resolved despite several reforms. According to the government data, discoms owe around Rs 1.1 lakh crore to the power generating companies.

The new Bill mandates that the discoms would be liable to comply with Renewable Purchase Obligations otherwise they would be forced to pay penalties. RPOs refer to the mandate given to discoms, to purchase a portion of their total power through renewable sources of energy. Experts working in the energy sector claimed that this could lead to increased use of clean energy but there are still several challenges in this pathway too.

“The Bill also talks about boosting clean energy by ensuring mandatory RPO compliance by discoms. This provision is likely to force the discoms to buy clean energy at a higher cost. In such a situation how, these companies will ensure compliance is a question to discuss and needs special attention. Usually, the discoms tend to pass on such extra burden on the consumers. We have to see how the consumers would be affected by such actions,” said Tirthankar Mandal, Head of Energy Policy at the World Resources Institute, India.

Mandal, however, added that the Bill needs a wider consultation, to address the bigger and fundamental questions around power distribution.

This article first appeared on Mongabay.