Putting an end to power sector revadis

Electricity is a crisis-ridden sector in India. State governments over time have displayed recklessness in managing the sector to such an extent that they have to be bailed out every five to seven years as they are left with little or no money for the sector.

The Centre, however, seems to be in a mood to discipline the profligacy of states. In the Monsoon Session of Parliament, The Electricity (Amendment) Bill, 2022 was introduced to that end. One big aim of the Bill was to allow multiple distribution licensees (companies) (discoms) in the same area to encourage competition. This is akin to letting a consumer choose his telephone company or a mobile service provider. To that end, the Bill sought to amend Section 14 of the original Act that will facilitate the use of distribution networks by all licensees in a non-discriminatory open access manner. Similarly, an amendment of Section 42 would “give non-discriminatory open access to other distribution licensees on payment of wheeling charges.” These and a host of other provisions have been designed to further competition.

When old-style State Electricity Boards (SEBs) were unbundled in the first wave of reforms in the sector two decades ago, competition was the moving force behind the changes. But over time, states gamed the system to the point that cross-subsidisation, delayed payments to power generation companies and extreme reluctance to link tariffs with cost of generation and distribution considerations, turned the clock back.

The Bill was referred to a parliamentary standing committee after the Opposition went into an overdrive during the Monsoon Session. But that has not ended the drive towards enforcing discipline.

On Thursday, Business Standard reported that 12 states have been debarred from short-term power purchase/selling in the sport electricity market as a penalty for not paying power generation companies in time. These states include Andhra Pradesh, Tamil Nadu, Telangana, Karnataka, Bihar, Jharkhand, Madhya Pradesh, Maharashtra, Chhattisgarh, Rajasthan, Manipur, Mizoram and the Union Territory of Jammu and Kashmir. Most of these states have large sums as pending payments.

Section 7 of The Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, empowers the national electricity grid operator—Power Systems Operation Corporation—from taking this step. These rules were notified on 3^rd June this year.

Enforcing market discipline is a politically tough process that has to be carried out by offering carrots and sticks to states that have for long been addicted to subsidies in the sector. The Centre has for long given lots of carrots such as the Ujjwal Discom Assurance Yojna or UDAY scheme launched in 2015. Another one, the Revamped Distribution Sector Scheme (RDSS) , has been launched recently. But it is time now for the stick. Without that power sector discipline and reforms will remain an illusion as they were two decades ago. The Electricity (Amendment) Bill, 2022 will become a law sooner or later and is a key step in this process.

About The Author

Siddharth Singh

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