The NDA government announced two schemes for strengthening last mile power connectivity- Deen Dayal Upadhyay Gram Jyoti Yojana for rural areas and Integrated Power Development Scheme for urban areas. The progress has been though slow yet adding a new target for the power ministry. On Independence Day PM Narendra Modi had announced that 18,500 villages would be electrified in 1000 days.
The Electricity (Amendment) Bill could not be placed in Parliament for discussion and passing in the monsoon session due to non-functioning of Parliament and is now scheduled to be taken up in the next session. The bill has been cleared by standing committee on energy with dissenting notes from Congress, AIDMK and CPI (M).
The Electricity bill seeks to segregate the power distribution network from electricity supply business and the option to power consumers to choose their electricity service providers. It has been claimed that once the bill is cleared by the Parliament it will bring more competition and improve quality of services in the power distribution segment. But in practice if the changes are made, the power distribution would go entirely too private hands.
The earlier experiment of introducing franchisee for power distribution in all the major towns of country has failed. The power utilities have been forced to terminate the franchisee work in number of cities as the franchisee companies have failed to pay even the agreed revenue to power utility. Jalgoan, Kanpur and Aurangabad are the latest examples in this regard. The power utilities in each case has to suffer a loss of more than hundred crore rupees in each case.
It has become crystal clear that urban distribution franchisee has nothing to do with improvement it is simply a mechanism to privatise the profits which is not in the national interest. As far as losses are concerned AT&C losses can be better controlled and reduced within the frame work of public sector functioning with a professionally qualified and technically oriented management to guide the policy and with the condition that political interference in day to day working is avoided.
Now the proposed amendments in electricity bill, which seeks to segregate the power distribution network from electricity supply business is basically anti-people and does not look at root cause of power sector ailments but only treat the symptoms of problems. The amendments in electricity bill are not based upon ground realities but are meant only to watch the interest of private players and financially bankrupt state sector Discoms.
Distribution and retail supply is the most critical link in the electricity market, which interfaces with the end customers and provides revenue for the entire value chain. By separating carriage and content in the power distribution sector, the electricity bill, in one stroke make all the power utilities in public sector totally unviable.
If bill is passed in the Parliament the tariff would increase by the addition of supply licensees and the financially bankrupt Discoms would be left only to cater to subsidised consumers and people living below poverty line. It may be mentioned that service providers will use the already laid out distribution network of state Discoms without any investment or any responsibility to maintain the network.
The losses of state Discoms have already in gigantic proportions and are threatening to derail the banking sector. The bank's exposure to power sector has already touched Rs. 2 trillion figures today. But the financial rot in some state electricity boards has only worsened since banks restructured loans to these entities under the financial restructuring proposal in September 2012. Less than three years later, as the moratorium on principal repayments included in the restructuring packages, comes to an end, bankers are fearing defaults from most of the state electricity boards which accepted the restructuring plan.
The Discoms have already laden with debt of Rs. 3.04 trillion and accumulated losses of Rs. 2.52 trillion partially due to subsidised tariff for a number of consumer groups to keep energy affordable because of rampant power theft, and power purchase from private sector at the cost of shutting down state sector thermal units.
The separation of distribution business content and carriage - involves significant costs and may be difficult to reverse. There are risks associated with it that need to be taken seriously. The issues of the ageing infrastructure of distribution network have been acknowledged for quite some time.
The private sector is interested in only profits by hook or crook. The proposed amendments would give financial benefit to the high end consumers making the State Discoms to go into further financial distress and make it impossible to give power to 80 million un-electrified households.
The presence of large number of suppliers... would lead them to categorize electricity consumers into 'priority' and 'non-priority' or 'subsidized' category. There would be limited electricity penetration in poorer, agrarian areas of our country, which in turn would mean that people in rural areas, like our farmers and the poor, would end up bearing the brunt of this skewed policy.
The priorities and strategies of development of every state will be different and will also be having their own stake in deciding the structure of the sector, development strategies and tariff design including decisions on subsidies and cross subsidies of Electricity. Hence making the policy decisions of central government as mandatory is against the federal set up of governance and is not proper.
Government had introduced the Electricity (Amendment) bill 2014 in Parliament with full knowledge of facts that the experience gained over the years of splitting of power distribution network has not yielded the desired results. Even the Standing Committee on Energy to whom bill was referred took views of only state power utilities and regulators. It has not bothered to consult biggest stake holders, the power engineers.
The main objective of the amendment seems to be to push the commercialization of electricity, opening up the distribution sector before the profit motive of corporate houses. The priorities of Government seem to be in favour of high income groups where people want round the clock quality power supply.
The experience and effect of market power in a scarce market has not been considered in formulating the proposal. As India is energy starved nation, reducing price of power through competition is impractical. The competition is possible only in a situation of surplus, not scarcity of electricity, which the country was facing. At present nearly 40 per cent population of the country does not have access to power as they cannot afford power even at existing rates.
The practical impact of proposed amendments will be inability of the State Discoms to make investments for extending power supply to 80 million un-electrified households and making it impossible to achieve the government of India stated objective of power supply for all consumers by 2018-19.
As per the amendment anybody applying for a licensee has the right to get a license and there is every chance of non-serious players to come in as licensee and collect security deposits and fly away.
The proposed system of separating out supply from wires business involves a foolproof and dispute free system of energy accounting and loss determination which is not possible under present circumstances.
The amendments proposed to Electricity Act 2003 will wreck state-run Discoms financially, ending the cross subsidy regime and leading to hiked power tariffs. The amendments would lead to a further rise in prices of essential commodities due to privatization of the sector. The issue of "loss of jobs" for employees in power sector also needs introspection and the states would have to depend on private sector for growth projects.
The Government must discuss the issues the power sector is facing with engineers, the major stake holders and listen to their view points before discussing the bill in winter session.