Note
On Review Of Electricity Act, 2003
(Submitted to the UPA-Left Coordination Committee)
The National Common Minimum programme states that, “The review of the Electricity Act, 2003 will be undertaken in view of the concern expressed by a number of states. The mandatory date of June 10, 2004 for unbundling and replacing the state electricity boards will be extended”.
It is necessary to address this matter seriously, as power is an essential requirement for our all-round social-economic development. A draft National Electricity Policy has been formulated, without undertaking the review of the Act even without consulting the State Governments which according to the Act is a must. Contrary to the CMP, the Ministry of Power it appears has dismissed all talk of any review of the Act. We cannot agree with this approach.
Steps in certain states were taken in anticipation of this Act, and in some states after it was passed. The results have proved disastrous. Mention can be made of Orissa, Andhra Pradesh, Delhi. In the light of experience we would like to draw attention to the following aspects:
(ii) The Act has made a statutory distinction between Rural & Urban and also made it legally mandatory to eliminate subsidies and cross subsidies. This has serious implications on Agriculture, Powerlooms, Streetlights, water works & 75% of rural population. The Act if not amended will divide the masses in rural & urban areas.
(iii) Sections 79 & 86 of the Electricity Act, 2003 provides for functions to be discharged by the Central and State Electricity Regulatory Commissions. In the present form of the Electricity Act 2003, the State Governments have been burdened with a lot of responsibility but with almost no authority. The authority to take effective decisions lies squarely with the SERC’s which have no executive responsibility at all. It needs also to be kept in view that the SERC’s have been functioning for a limited period of time and are yet to establish suitable procedures and regulations with due consultation of the utilities and the State Government. While the regulatory body has a significant role, this cannot be a body which can overrule or ignore the declared objectives of the State Governments. Central Government or State Governments, as the case may be, will have to be the decider of the policies and objectives. SERC’s role has been considered as that of an expert body which can take into account the socio-economic parameters in the right perspective and, thus, it cannot be considered a judicial body which operates primarily on law issues. This aberration is to be rectified. Before passing any order, including tariff order, SERC/CERC must consult the State Government/Central Government to ascertain their views in the proper perspective.
(iv) Cross-subsidisation issues are to be addressed adequately. At present, the term ‘cross-subsidisation’ has not been defined in the Electricity Act 2003 and this is to be rectified. Further, Section 61(g) of the Act mentions that the tariff should progressively reflect the cost of supply of electricity and also reduce and eliminate cross-subsidies within the period to be specified by the Commission. However, it should be appreciated that electricity is a basic minimum need and is an essential driver for economic growth and poverty alleviation. The basic provision of electricity for all households is necessary for fulfilling human development objectives. While there is an urgent need for recovering the revenue requirement of the utilities, it cannot be denied that a minimum level of support would be required to make electricity affordable for very poor households. Public bodies shall be treated in same fashion. Therefore the words ‘reduces and eliminates’ should be deleted from Section 61(g).
(v) Under Section 6 of the Act, the obligation of the supply of electricity in rural areas rests only on the State Governments. All State Governments in this country are under considerable financial constraint. They are often not in a position to avail of loan funds being provided for rural electrification by organisations such as REC & PFC. Since the Government of India is the custodian of the Electricity Act and has taken due steps to frame a Rural Electrification Policy, it is necessary to amend Section 6 suitably so that the obligation to electrify rural areas rests both upon the Central and the State Governments.
(vi) Section 14 of the Electricity Act, 2003 provides for grant of license of any transmission licensee, distribution licensee or electricity trader by the Appropriate Commission. In our view distribution licensees should be granted by the State Governments only. Otherwise, it is apprehended that all the lucrative areas for distribution are likely to be picked up by private distribution licenses to the detriment of the State Electricity Board/distribution company who will be left with the responsibility of distributing electricity only to the marginal areas where the bulk of the consumers do not have the capability to pay electricity charges on a regular basis. Transmissions system should be kept in the dominion of Central/State Governments.
(vii) In the name of resources crunch private monopolies – foreign and Indian – were invited for power generations as Independent Power Producers (IPPs) and offered major incentives. These incentives were guaranteed return on equity @ 14 -16%, higher rate of depreciation to an average of 8.04%. Higher O & M cost, full reimbursement of income tax treating it as a pass through item to tariff, etc.
This resulted in increase in cost of power. Central Public Sector Organisations also exploited the situation and increased power cost like other IPPs and expedited the process of SEBs becoming sick and a more than 3 fold increase in the cost of power supply.
The high price of electricity in the country led to closure of industries in many areas and of making Indian industry non-competitive. India’s power tariff for industry currently is one of the highest in the world. The story of agriculture sector needs no narration.
We have ensured that the balance between the Centre and the state in the federal structure of India as envisaged in the Constitution of India is not diluted.
We also feel that the profits of a regulated sector like power should be capped based on the prime RBI lending rate and not an arbitrary figure such as 14 - 16%. This should be part of the Act as it was in the 1948 Act. The depreciation rate should also be realistic in ;\line with the anticipated life of the plant.
Cross-subsidies should continue in the tariff formulation subject to an upper limit beyond which it will have to be direct subsidy from the Government. The present Act ignores this altogether.
We insist that power should be made available at a affordable rate to all sections of the people with special provision for agriculture. Electricity development has to correct the very large regional imbalances that exist in the country. Tariff is to be fixed by the concerned government. The regulatory authorities should only be responsible for an equitable implementation of such policies.
(viii) The Central Electricity Authority has been emasculated under the Act. CEA should continue to be the repository of technical excellence in India so as to enable it to a) prepare a National power Plan b) Provide technical support to the Regulatory Commission and governments c) Appraise the techno-economic viability of generation and transmission projects and d) evaluate the technical and commercial claims of manufacturers and service providers.
“Captive Generation” also requires to be defined more precisely in the Act so as to preclude large industrial units from making a back door entry into generation and trading without assuming responsibility for rural electrification that shall remain in the domain of SEBs. The captive generations should be regulated and should pay surcharge to compensate the SEBs for their obligation for universal service provision.
Hydropower should not be privatised (A hydro power site is a gift of nature and is finite, privatizing should not be allowed of this finite resource.)
There has to be social control on the techno-economics of power plants. Choice of fuel and cost of the power plant and consequent cost of generation must be regulated.
(ix) “Open access” as advocated in the Act is meaningless in a situation of supply shortages and shortfall in transmission capacity. Therefore, it is neither desirable nor feasible to have unfettered open access.
Provisions for 2nd licensee for distribution should remove.
Universal service obligation is directly hindered by unfettered open access since it tends to segregate the profitable and the loss making segments of the supply industry and privatises only the former.
Trading should be restricted only to the public owned agencies since there is a grave danger of large speculative profits if there is inadequate regulation. Under the present conditions of shortages it is not possible to have on line market regulation, consequently there will be cherry picking and domestic and agricultural consumers will be the causality.
It is for the above reasons that some of the provisions of the Act have to be reviewed and amended. The National Electricity Policy has to be worked out keeping the interests of consumers in mind, and in consultation with the state governments, and the organisations of employees and engineers.
We therefore urge that a Review Mechanism for the Act be set up by Government immediately for this purpose. In the meantime the mandatory provision for unbundling the replacing the SEBs be kept in abeyance.
